How to do the accounting when you sell an asset

So you’ve sold an asset…how do you  account for it?

Maintaining your day-to-day QuickBooks is what I call Level 1 work, the stuff involved in the routine operations of your business.

Level 2 work is stuff that comes along on a regular, predictable basis that doesn’t have to do with operations per se, like recording monthly depreciation of an asset.

Level 3 work is stuff that comes along on an irregular, unpredictable basis, like selling an asset.

~~~~

I was talking recently with a photographer client of mine. He maintains his own QuickBooks–the Level 1 stuff—and had a question about how to handle a Level 3 item: he had sold a camera lens that he bought a few years back and he wanted to know how to account for the sale of this asset.

Here’s what his Balance Sheet looked like before he sold the asset:

DR       Fixed Asset                                                              2,000.00

CR          Accumulated Depreciation                                                  2,000.00

 

He sold it for $1,800.00. Here’s how to account for it in QuickBooks.

DR       Cash in Bank                                                         1,800.00

CR          Fixed Asset                                                                                   2,000.00

DR      Accumulated Depreciation                                 2,000,00

CR          Gain on Sale of Asset **                                                             1,800.00

 

** This is an Other Income account, not a Balance Sheet account, and shows up on your Profit and Loss statement.

You might be wondering why there’s a GAIN on the sale of the asset when he received $200 less than he originally paid for it. That’s because the equipment was fully depreciated and the book balance was zero.

Put another way, he bought the item 5 years ago and at that time estimated that its “useful life” would be 4 years. So in the first four years that he owned and used the asset, he took $500 per year of depreciation. This brought the “book value” down to zero at the end of year 4. He still used the asset in year 5 and that’s totally OK.  You still “carry” the asset on your books as long as you continue to use it.

Had the item not been fully depreciated at the time of sale, he would DR only the Accumulated Depreciation up to the point of sale.

In your QuickBooks accounting, you would make these entries in the Make Deposits window, using the date your received the money as the deposit date. This way the final entry is properly recorded time-wise.

I love getting questions like this. Do you have a one that I can answer for you? Please let me know.