Journal Entry to Record Sale of Building

Any kind of business, small or big all have one thing in common and that is the building where they conduct their business. That physical structure can be a rented space or it can be owned by the company itself. These buildings are the most important assets for any company since it is where all the operation happens. There is a lot of time, effort, and money goes into making these buildings because they are expected to last for a long time.

Buildings can be considered long-term assets for any company because once built they can be used for many years to come with just some maintenance. In contrast, other assets like furniture and equipment have a shorter lifespan and need to be replaced more often. For this reason, buildings are usually at the top of the balance sheet for any company since they are such important assets. Therefore, when making investment decisions, companies must carefully consider whether a building will help them achieve their long-term goals.

The accounting treatment for the building is an important topic for businesses and accountants. Buildings are a significant asset for any business, and they can be depreciated over time. The accountant will need to determine the useful life of the building and the depreciation method that should be used. The straight-line method is commonly used for office buildings.

The accountant will also need to consider the impact of repairs and renovations on the value of the building. In some cases, it may be necessary to adjust the depreciation schedule to reflect changes in the value of the building. This can be a complex process, but it is important to get it right in order to accurately reflect the value of the building on the balance sheet.

Journal Entry for sale of building

When the company sells the building, it needs to remove from the balance sheet. It must remove both the cost and accumulated depreciation.

The company usually records both the cost and accumulated depreciation of the building on the balance sheet. Accumulated depreciation is the negative balance that will reduce the cost of building. The total of both accounts will equal the net book value.

The journal entry is debiting Cash, accumulated depreciation, and credit cost.

Account	Debit	Credit
Cash	XXX
Accumulated Depreciation	XXX
Cost of Building		XXX

If the company sells the building for more than the net book value, it will generate a gain. And the gain will be recorded on the income statement.

Account	Debit	Credit
Cash	XXX
Accumulated Depreciation	XXX
Cost of Building		XXX
Gain on Sale of Building		XXX

On the other hand, it will make a loss if the company sells the building for the amount lower than the net book value.

Account	Debit	Credit
Cash	XXX
Loss on Sale of Building	XXX
Accumulated Depreciation	XXX
Cost of Building		XXX

Example

Company ABC owns a building that cost $ 500,000 and accumulated depreciation of $ 200,000 on the balance sheet date. The management team has decided to sell the building for $ 350,000 in cash. Please prepare the journal entry for the sale of the building.

The company decides to sell the building for $ 350,000. We have to calculate if the company is making gains or losses.

First, we need to calculate the building’s net book value which is the cost less accumulated depreciation.

Net book value = $ 500,000 – $ 200,000 = $ 300,000

This building is sold for $ 350,000, so it is making a gain of $ 50,000

Gain = $ 350,000 – $ 300,000 = $ 50,000

The journal entry is debiting cash $ 350,000, accumulated depreciation $ 200,000 and credit cost $ 500,000.

Account	Debit	Credit
Cash	350,000
Accumulated Depreciation	200,000
Cost of Building		500,000
Gain on Sale of Building		50,000