Journalizing a loss from disposed or sold business equipment is important for a few reasons. It lets investors know certain losses incurred by your business during the year are from a specific event, unlikely to recur often. It also removes the asset from your books and allows you to figure appropriate losses to claim on your business income tax return at the end of the year. Once you’ve performed some basic calculations concerning the disposal of the equipment, you’ll make one transaction entry to your journal that affects four accounts.
Calculate the amount of loss you incur from the sale or disposition of your equipment. In general, a loss is computed by subtracting the amount you receive from the equipment’s sale from the book value of the asset. The book value of the equipment is your original cost minus any accumulated depreciation.
Debit your cash account for the amount you receive from the sale of the equipment.
Debit your accumulated depreciation account for any book value remaining on the equipment when you sell it.
Credit your equipment asset account for the amount of its original cost.
Create an account in your Chart of Accounts for “Loss on Sale of Equipment.” This is an Income Statement account.
Credit your “Loss on Sale of Equipment Account” for the amount of loss you calculated. The sum of both debt entries and the sum of both credit entries should match and balance once they have all been entered into your journal.
