1. Determine if the adjusting entries to record depreciation expense are up to date. If not, complete the adjusting entry to record depreciation expense for the appropriate period of time to be able to determine the current book value.
2. Record the reversal of the asset and accumulated depreciation. (CR Asset, DR Accum Depr)
3. Record any cash received upon sale (DR Cash)
4. Determine the difference between the asset account and the accumulated depreciation & cash amount. The difference is the gain or loss on the asset. **Remember for your journal entry, the total $ of the debit side must equal the total $ of the credit side.
Do we want to try an example?
On December 31, 2012 we discarded a piece of equipment that was purchased on January 1, 2008. The equipment cost $48,000. It was depreciated based on a 6-year useful life with a $2000 salvage value.
There are 2 journal entries required for this asset disposal. Anyone want to take a stab at them using the steps I have provided above?
12/31/12 Adjusting entry to record current period depreciation:
DR ____________ $x
CR ______________$x
12/31/12 Journal entry to record disposal and gain/loss on asset:
DR _____________$x
CR _______________$x