Journal entry for sale of non-current asset

Introduction

In business, we may need to make the sale of the non-current asset for some reasons, such as we no longer have a use for it or we want to replace it with a new and better one. In any case, we need to make the journal entry for the sale of the non-current asset, in which it may result in some gains or losses in the transaction.

The gain on the sale of a non-current asset comes from selling the non-current asset for more than its net book value. On the other hand, the loss on sale of the non-current asset is the result that we sell the non-current at the price lower than its net book value.

Of course, sometimes, we won’t have any gain or loss as we may sell the non-current assets at their net book value. The net book value of a non-current asset is the amount of its original cost minus the accumulated depreciation as of the time of the sale.

Likewise, the journal entry for the sale of the non-current asset is important to record any gain or loss (if any) to the income statement as well as to remove the sold non-current asset and its related item from the balance sheet. Of course, we will always need to record the proceeds from the sale that we receive to the balance sheet regardless of us making a gain or making a loss for the sale transaction.

Journal entry for sale of non-current asset

No gain or loss on sale of non-current asset

We can make the journal entry for sale of non-current asset by debiting the cash account and the accumulated depreciation account and crediting the non-current asset account if there is no gain or loss as a result of the sale.

Account	Debit	Credit
Cash	XXXX
Accumulated depreciation	XXXX
Non-current asset		XXXX

In this journal entry, the debit of the cash account is to record the cash inflow to the business as a result of the sale of the non-current asset. On the other hand, the debit of accumulated depreciation and the credit of non-current asset is to remove them from the balance sheet.

Gain on sale of non-current asset

If we have a gain on sale of non-current asset, we can make the journal entry for gain on sale of the non-current asset by crediting the gain amount to the gain on sale of non-current asset account as below:

Account	Debit	Credit
Cash	XXXX
Accumulated depreciation	XXXX
Gain on sale of non-current asset		XXXX
Non-current asset		XXXX

In this journal entry, the gain on sale of non-current asset account is an income statement item, in which it is usually recorded under the other revenues of the income statement.

Loss on sale of non-current asset

On the other hand, if we make a loss instead, we can make the journal entry for loss on sale of non-current asset by debiting the loss amount to the loss on sale of non-current asset as below:

Account	Debit	Credit
Cash	XXXX
Accumulated depreciation	XXXX
Loss on sale of non-current asset	XXXX
Non-current asset		XXXX

In this journal entry, the loss on sale of non-current asset account is also an income statement item. However, it is usually recorded under the other expenses of the income statement.

Sale of non-current asset example

For example, on December 31, we have made a sale of office equipment which is a non-current asset on our balance sheet. This office equipment has a net book value of $500 on the balance sheet as of December 31, in which it comes from the $2,000 cost minus a $1,500 accumulated depreciation.

However, we have sold it for $700 in cash, in which we have made a gain of $200 ($700 – $500) from the sale transaction.

In this case, on December 31, we can make the journal entry for gain on sale of the office equipment which is a non-current asset as below:

Gain on sale of non-current asset:

Account	Debit	Credit
Cash	700
Accumulated depreciation – equipment	1,500
Gain on sale of equipment		200
Equipment		2,000

The $200 of gain on sale of equipment in this journal entry will be recorded under the other revenues of the income statement. Likewise, we usually don’t see the gain on sale of equipment account on the income statement as it is usually included in the other revenues with many other small revenues.

Example 2:

For another example, assuming that we have sold the office equipment in the above example for only $400 even though its net book value on the balance sheet at the time of the sale is $500. This would make us a loss of $100 ($500 – $400) in the sale transaction of the non-current asset.

In this case, we need to make the journal entry for the $100 loss on the sale of the non-current asset with the debit of loss on sale of equipment as below instead:

Account	Debit	Credit
Cash	400
Accumulated depreciation – equipment	1,500
Loss on sale of equipment	100
Equipment		2,000