What Is the Meaning of Sale of Assets?
Companies will have a variety of assets they use in their operations to generate sales and earn profits. While not necessarily a regular activity for many companies, selling certain assets may be necessary during business operations.
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Defined
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The sale of assets mean companies will relieve their operations of valued items for cash or other compensation. While retail companies will sell inventory assets frequently to generate revenue, account receivables, investments, property, equipment or facilities are also salable assets.
Purpose
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Companies will often sell fixed assets when they have no further value to the company. For example, a manufacturer may sell the machine that produces widgets once it reaches the 10,000-units-produced mark. After this point, the equipment's value may significantly decrease.
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Considerations
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Selling fixed assets may result in an extraordinary gain or loss companies must report on their financial statement. This is often written against net income, increasing or decreasing income. Reporting these sales as extraordinary ensures individuals understand the item will not consistently recur in the company's operations.
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