The process of composing the accounting journal entry for disposal of an asset is best carried out by methodical consideration of each element in the transaction. First, removing the asset from the accounting books requires eliminating original cost. The next item cancelled is accumulated depreciation, which is the depreciation deducted during property use. The difference between cost and accumulated depreciation is the asset’s net book value. Next, the sales proceeds – if any – are recorded as a deposit. The result of subtracting net book value from sales proceeds is the income gain or loss from the transaction.
Things You'll Need
- Accounting record of original asset purchase
- Depreciation schedule
- Amount of sales proceeds for the disposed asset
Create an Income account for the accounting records called “Gain or Loss on Disposal of Asset.”
Locate the cost of the asset in the accounting entry that recorded the original purchase. In the disposal journal entry, credit the asset cost to the same Fixed Asset account on the books used to record the original asset purchase.
Find the amount of accumulated depreciation for the asset on the depreciation schedule. In the journal entry, debit the Accumulated Depreciation account by the amount of accumulated depreciation previously deducted on the disposed asset.
Record any revenue from selling the asset by making a debit in the journal entry to the cash account where sales proceeds are deposited – or with a debit to Accounts Receivable for future expected payment of sales proceeds.
Subtract the total debits from the credit. A positive amount is recorded in the journal entry as a debit to “Gain or Loss on Disposal of Asset.” A negative amount is recorded in the journal entry as a credit to “Gain or Loss on Disposal of Asset.”