What is the Journal Entry to Record the Sale or Disposal of an Asset?

When an asset is sold or scrapped, a journal entry is made to remove the asset and its related accumulated depreciation from the book. The asset is credited, accumulated depreciation is debited, cash in debited, and the gain or loss is recorded as either revenue (gain) or expense (loss) using an account called Gain or Loss on Sale of an Asset.

Asset 1	20xx Ford F350
Asset Name	Vehicles
Useful Life	5 years
Cost (Basis)	$40,000
Salvage Value	$2,000
Units: Miles	100,000

As an example, let’s say our example asset is sold at the end of Year 3 and that we used Straight Line depreciation for this asset.

Year	Depreciation Expense	Accumulated Depreciation	Net Book Value
1	7,600	7,600	32,400
2	7,600	15,200	24,800
3	7,600	22,800	17,200
4	7,600	30,400	9,600
5	7,600	38,000	2,000

At the end of Year 3, the Balance Sheet shows the cost of the asset, the amount of accumulated depreciation for the asset, and the net book value. It looks like this:

Vehicles	$40,000
Less Accumulated Depreciation	(22,800)
Net Book Value	$17,200

Let’s look at two scenarios for the sale of an asset.

Scenario 1: We sell the truck for $20,000

When an asset is sold for more than its Net Book Value, we have a gain on the sale of the asset. We are receiving more than the truck’s value is on our Balance Sheet.

The journal entry will have four parts: removing the asset, removing the accumulated depreciation, recording the receipt of cash, and recording the gain.

1. To remove the asset, credit the original cost of the asset $40,000.
2. To remove the accumulated depreciation, debit the amount listed on the Balance Sheet $22,800
3. To record the receipt of cash, debit the amount received $20,000
4. To record the gain on the sale, credit (because it’s revenue) Gain on Sale of Asset $2,800. This represents the difference between the accounting value of the asset sold and the cash received for that asset. $20,000 received for an asset valued at $17,200.

Cash	20,000
Accumulated Depreciation	22,800
Vehicles		40,000
Gain on Sale of Asset		2,800

Scenario 2: We sell the truck for $15,000

When an asset is sold for less than its Net Book Value, we have a loss on the sale of the asset. We are receiving less than the truck’s value is on our Balance Sheet.

The journal entry will have four parts: removing the asset, removing the accumulated depreciation, recording the receipt of cash, and recording the loss.

1. To remove the asset, credit the original cost of the asset $40,000.
2. To remove the accumulated depreciation, debit the amount listed on the Balance Sheet $22,800
3. To record the receipt of cash, debit the amount received $15,000
4. To record the loss on the sale, debit (because it’s an expense) Loss on Sale of Asset $2,200. This represents the difference between the accounting value of the asset sold and the cash received for that asset. $15,000 received for an asset valued at $17,200.

Cash	15,000
Accumulated Depreciation	22,800
Loss on Sale of Asset	2,200
Vehicles		40,000

For more in depth examples of Selling and Asset at a Gain or Loss, watch this video:

https://youtu.be/pSFt6fuiBvs