Journal Entry for Sale of Used Equipment

Sale of used equipment is the process which a company sells its pre-own fixed assets (equipment) for exchange with some consideration.

Equipment is classified as the fixed assets on company balance sheet. They are expected to be used for more than one accounting period (12 months) from the reporting date.

The equipment is similar to other types of fixed assets which will decrease its value over time. So the value record on the balance sheet needs to decrease too. We need to reverse the cost of equipment to depreciation expense based on the useful life. The depreciation expense needs to spread over the lifetime of the asset.

At any time, the company may decide to sell the fixed assets due to various reasons. The equipment broke down before the end of useful life, so we need to replace it with a new one. The company may require a new machine to increase the production capacity.

When the company sold any particular equipment or fixed assets, it means company will no longer have control of that asset. So when have to remove the assets from the balance sheet.

One fixed asset has an impact on two separate accounts which are cost and the accumulated depreciation. So when we sell the asset, we need to remove both costs and accumulated of the specific asset. The sale may generate gain or loss of deposal which will appear on the income statement.

Journal Entry for Sale of Used Equipment

If assets are fully depreciated

When fixed assets are fully depreciated, it means the cost is equal to accumulated depreciation. The netbook value of that asset is zero. After selling the fixed asset, company needs to remove both the cost and accumulate the assets.

The journal entry is debiting accumulated depreciation and credit cost of assets.

The journal entry will remove both costs and accumulated assets.

The company needs to record another journal entry for cash and gain on asset disposal.

The amount represents the selling price of an old asset, and it will be classified as gain on disposal.

If assets are not fully depreciated

When the fixed assets are not yet fully depreciated, it still has some net book value on the balance sheet. The sale of this kind of fixed asset will generate gain or loss for the company. It is a gain when the selling price is greater than the netbook value. On the other hand, when the selling price is lower than the net book value, it is a loss.

The company needs to combine both entries above together.

The journal entry is debiting accumulated depreciation, cash/receivable, and credit fixed assets cost, gain, or loss.

If the selling price is lower than the net book value, company will make a loss. The loss on disposal will record on the debit side.

Journal Entry for Sale of Used Equipment Example

ABC is a retail store that sells many types of goods to the consumer. In the accounting year, company decides to sell 3 equipment with the following detail:

ABC receive cash for all the sales above. Please prepare journal entry for the sale of the used equipment above.

Equipment 1:

This equipment is fully depreciated, the net book value is zero. So the selling price will record as the gain on disposal.

To remove this equipment, we need to make a journal entry of debiting accumulated depreciation and credit cost of equipment.

To record cash received, we need to make journal entries by debiting cash and credit gain from disposal.

Equipment 2:

This equipment is not yet fully depreciate, the netbook value is $ 5,000 ($ 20,000 – $ 15,000) and company sell for $ 8,000. So they are making gain of $ 3,000.

Gain on disposal = $ 8,000 – $ 5,000 = $ 3,000

ABC needs to make journal entry by debiting cash $ 8,000, accumulated depreciation $ 15,000 and credit gain on disposal $ 3,000, cost of equipment $ 20,000.

Equipment 3:

The netbook value of this equipment equal to $ 10,000 ($ 30,000 – $20,000) but it was sold for $ 6,000 only. The company is making loss.

Loss on Disposal = $ 10,000 – $ 6,000 = $ 4,000

The journal entry is debiting loss $ 4,000, cash $ 6,000, accumulated depreciation $ 20,000 and credit cost $ 30,000.