How to Dispose of a Fixed Asset in QuickBooks 2012

By Stephen L. Nelson

One wrinkle of fixed asset accounting concerns disposal of a fixed asset for a gain or for a loss, but QuickBooks 2012 can help you with this problem. When you ultimately sell a fixed asset or trade it in or discard it because it’s now junk, you record any gain or loss on the disposal of the asset. You also remove the fixed asset from your accounting records.

To show you how this works, consider again the example of the $12,000 delivery truck. Suppose that you’ve owned and operated this truck for two years. Over that time, you’ve depreciated $2,000 of the truck’s original purchase price. Further suppose that you’re going to sell the truck for $11,000 in cash. Here is the journal entry that you would make in order to record this disposal.

Journal Entry 12: Recording Fixed Asset Sale for Gain
Account Debit Credit
Delivery truck 12,000
Cash 11,000
Acc. dep. — delivery truck 2,000
Gain on sale 1,000

The first component of Journal Entry 12 shows the $12,000 credit of the delivery truck asset. This makes sense, right? You remove the delivery truck from your fixed asset amounts by crediting the account for the same amount that you originally debited the account when you purchased the asset.

The next component of the journal entry shows the $11,000 debit to cash. This component, again, is pretty straightforward. It shows the cash that you receive by selling the asset.

The third component of the journal entry backs out the accumulated depreciation. If you depreciated the truck $1,000 a year for two years, the accumulated depreciation contra-asset account for the truck should equal $2,000. To remove this accumulated depreciation from your balance sheet, you debit the accumulated depreciation account for $2,000.

The final piece of the disposal journal entry is a plug, a calculated amount. You know the amount and whether that amount is a debit or credit by looking at the other accounts affected. For example, in the case of Journal Entry 12, you know that a $1,000 credit is necessary to balance the journal entry. Debits must equal credits.

If the plug was a debit amount, the disposal produces a loss. This makes sense; a loss is like an expense, and expenses are debits.

Over the two years of use, the business depreciated the truck by $2,000. In other words, the business, through the depreciation expense, said that the truck lost $2,000 of value.

If, however, the $12,000 delivery truck is sold two years later for $11,000, the loss in value doesn’t equal $2,000. The loss in value equals $1,000. The $1,000 gain, essentially, recaptures the unnecessary, extra depreciation that was incorrectly charged.