accounting for sale of fixed assets

If you sold a fixed asset then the monies received should get posted to the bank account and either an income or expense account called something like "Proceeds from Sale of Fixed Assets".

Then make a journal entry and remove the cost plus any capital allowances (Don't know what country your are from - in USA asccumulated depreciation) associated with the asset sold and charge (debit) the remaining basis to a conta-account to the one above called, "Cost of Fixed Assets Sold".

Should this be transferred to a depreciation account? I

That doesn't sound like US taxation; are you in Canada? Normally the accumulated depreciation is recorded in a separate QB account from the asset, which should be kept at purchase cost.

You need to create an "other income" account with a title such as "gain or loss from sale of assets." When you sell an item of equipment, you reduce the asset by the cost (zeroing it out), increase the accumulated depreciation by the amount claimed (zeroing it out), and the difference between those and the proceeds goes to the G/L account.

One other point should be clarified, guys. It also makes a difference if the

25% "capital write down" (for tax) is different from what was recorded on the books. If the amount of capital write down for tax was different than that on the books, the tax amount must be used to compute the gain/loss on sale of assets for tax purposes, but the books amount must be used to compute the gain/loss on sale of assets for book purposes.

These certainly can be different.

Anyway, Martin, hopefully you get the jest of all this. When you purchase an asset, the cost should be recorded as a fixed asset. As the asset ages, the decrease in its value should be recorded in a contra account (i.e. a fixed asset account with a negative balance) with the corresponding debit (charge) for loss of value recorded as an expense. Typically, the expense account is named "Depreciation Expense" and the contra is "Accumulated Depreciation". The net amount of the asset cost and its accumulated depreciation is the net book value of the asset.

If the asset is subsequently sold for more than its net book value, a gain on the sale is recognized as income. Conversely, if sold for less than net book value, a loss on the sale is recognized as expense. If the net book value of the asset sold is different for book and tax purposes, each must be used to determine the corresponding gain/loss on sale.

Hope this helps.

Larry Stinson Stinson Solutions

Specializing in Quickbooks Helper Applications

Good summary Larry. One further note if Martin is in Canada: For tax purposes most classes of capital assets must be accounted for on a "pooled" basis, not an individual basis, which makes it very probable that net book values and depreciation for accounting purposes WILL be different from "unclaimed capital cost" and capital cost allowance for tax purposes in many cases.

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recorded on

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transfer the

Larry,

Do you really think the OP has book and tax differences for his depreciation expense? Lets keep it simple or if you must add a section to your post for the defered tax implications of these temporary timing differences. I'm sure the OP will want to book the deferred taxes.

Thankyou for your comments, I should have mentioned I'm in the UK. As far as I can make out, I don't need to differentiate between depreciation for tax and book purposes. Anyway, the tax relief I can get for capital allowances seems to be greater than the actual depreciation in value in most cases, so I'm happy to just do it that way.

A friend told me that a net loss following the sale of an asset can simply be considered as a capital allowance (ie, deductable from profits) and I should just add it to the allowances calculated for depreciation of assets (which is currently 50% first year, 25% thereafter).

So I tried moving the sale amount into my bank account (which is where it went in real life!), and the final depreciation amount into a 'capital expense' or 'capital losses' account, but quickbooks wouldn't 'transfer money' to an expense account. So I gave up. My thinking is that if I've sold the asset, there shouldn't be any value left in the capital assets account.

As someone correctly noticed, I'm looking for the simplest solution! I'm just trying to figure out how much to put aside for tax, because I need to know how much cash is available.

My thanks again for your help,

Martin