Presentation of Gain or Loss on Asset Sale
The result of these journal entries appears in the income statement, and impacts the reported amount of profit or loss for the period in which the transaction is recorded. This gain or loss increases or decreases (respectively) the retained earnings balance reported in the balance sheet, so there is an indirect impact on the balance sheet, too.
Example of a Gain or Loss on Asset Sale Calculation
ABC Company has a machine that originally cost $80,000 and against which $65,000 of accumulated depreciation has been recorded, resulting in a carrying value of $15,000. ABC sells the machine for $18,000. The entry to record the transaction is a debit of $65,000 to the accumulated depreciation account, a debit of $18,000 to the cash account, a credit of $80,000 to the fixed asset account, and a credit of $3,000 to the gain on sale of assets account. The net effect of this entry is to eliminate the machine from the accounting records, while recording a gain and the receipt of cash.
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