Accounting Demystified phần 6 pdf

Fixed Assets 83

In this case, we need a credit to balance the journal entry.

This is a special type of revenue—a gain. We would title the

account ‘‘Gain on sale of asset.’’

Let’s say we sold the asset for $20,000 instead of $40,000.

The entry would be:

XX/XX/XX Accumulated depreciation 20,000

Asset 50,000

Cash 20,000

Loss on Sale 10,000

To record sale of asset

The easiest way to make the entry (and to always get it

right) is to debit the Accumulated depreciation account for the

depreciation taken, and then credit the asset account (for the

asset’s cost). Debit anything that was received (if the asset was

sold or traded). If you still need a debit to balance the account,

you have a loss; if you need a credit to balance the account,

you have a gain.

When you are selling or trading in the asset, you have to

remember to take a partial year’s depreciation in the last year

(prorated to the day of disposal or based on the company’s

policy, such as always taking one-half year’s depreciation in

the year of disposal). The examples we have used so far did not

include depreciation in the year of disposal. After taking the

partial depreciation in the year of disposal, we would then

apply the rules given earlier. Here’s an example to illustrate.

Let’s say a piece of equipment costs $60,000 and has a six-year

life. The Accumulated depreciation account has a balance of

$10,000. The company uses straight-line depreciation. On

March 1, the company sells the asset for $48,000.

The first step is to compute depreciation from January 1 to

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