How Do I Record a Loss of Land When Sold?

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A loss on the sale of land is a business expense.
A loss on the sale of land is a business expense. (Image: Countryside land image by Rose from Fotolia.com)

If your business-owned land was sold for less than you paid for it, you have a business expense for the loss on the sale of the land. The loss should be recorded on your accounting general ledger so it is reflected properly on your income statement and so the land no longer appears in your assets on the balance sheet. The accounts used to record a loss on the sale of land vary slightly depending on your business use of the asset.

Record the entire amount of cash received for the sale of the land as an increase to the business checking account.

Reduce the land asset account by the amount recorded for the land that was sold. If you sold one parcel of land out of a larger plot, you must make a reasonable allocation of the original purchase price to that one parcel. A common method is to allocate the cost by acre.

Create a “Loss on Sale of Land” expense account. If you used the land as part of normal business operations, then create the account in the “Other Expense” section of the general ledger, because the sale is related to your regular business operations. If your business held the land as investment property but did not use the land for business, create the account in the “Extraordinary Loss” section of the general ledger so the expense is not included with other regular operating expenses on the income statement.

Record the loss on the sale to the Loss on Sale of Land account created in Step 3. The loss recorded should be the difference between the land balance reduction posted in Step 2 and the total amount of cash received for the sale.

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References

  • "Principles of Accounting"; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
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