The actual type of asset that is sold determines the accounting entry required in the books. While there are some complexities, you do not need to be a certified public accountant to correctly determine the appropriate accounting entry. Keep in mind, however, it is also best to consult with a professional tax expert for final say on your company's financial statement if you have any concerns about your record-keeping.
Fixed assets incorporate depreciation, which is the scheduled loss of value over time. They must include the depreciation expense when recording the sale. The amount received for the sale is subtracted from the asset's cost and cumulative depreciation. The remainder is recorded as a profit or loss that flows through to the income statement. If a car is bought for $10,000, has $4,000 in depreciation costs and is sold for $5,000, then a $1,000 loss is recorded.
Intangible assets incorporate amortization much like tangible assets use depreciation. Over time, the value of intangible assets, such as patents, copyrights or trademarks are reduced according to straight line amortization (a fixed percent per year). When sold, this reduced value is recorded and subtracted from the income received from the sale. For example, if a pharmaceutical company values a patent at $1 million over 10 years and sells the patent after the third year for $500,000. The company would record a $200,000 loss after accounting for the $300,000 in amortization expenses.
Accounting for inventories is slightly more complex than other asset classes due to the subjective decision of the company. Accountants can choose to value inventories as LIFO or FIFO when sold. LIFO refers to Last In First Out, and uses the value of the most recent product sale to value all of the inventory. FIFO refers to First In First Out, and means that the value of inventories is based on when the products were originally placed into the inventory. Once this decision is made, inventory asset value can be recorded with each sale.
Investment accounting is also fairly complex, and is based on both your holding period and stake in the investment. There are five types of ownership with different types of accounting entries for each. Short term sales of stock are just recorded at fair market value. Larger holdings are recorded at the fair value based on buyer offers. Investments into debt that is intended to be held until maturity are valued at the reduced amortized value. When you have significant influence, or between 20 to 50 percent of a company, you must use the Equity Method which values a portion of the earnings and loss of the investment as your own. Finally, with 51 percent or more of a company, you use the consolidation method of accounting that assumes control of the company and responsibility for the entire assets of the investment.