There are 3 ways to disposal of asset or liquidate on your books:
Disposal of Assets
- Sell it
- Trade it
- Write it off
Selling an Asset
When you sell an asset you receive consideration (usually money) for it. This means you have to have account for the money you received, the asset has to come off the books and you have to re-capture all of the accumulated depreciation in order to remove the asset completely from your books. The difference between what you received and the book value of the asset is your Gain or (Loss).
The accounting for this is best accomplished with a journal entry. We are dealing with Assets which are increased by debits and decreased by credits. So in order to remove the asset and recognize the Gain/(Loss) the entry will look something like this:
If there is a gain, that will be in the credit column. A loss will show up in the debit column.
When I book the sale or Disposal of Assets. I don’t actually book the first line item to the bank account I book it to a “clearing” account. This way when the deposit comes in I can simply book the deposit with “clearing” under the “From Account” column.
Trading an Asset
When you dispose of an asset by trading it, your are doing basically the same thing as when you sell an asset except that instead of receiving cash for the asset you are receiving an asset. The journal entry will reflect this by showing a line item with a Debit to the new Asset account for the fair value of what was received. If this amount is not obvious a specialist may need to be called in to give an appraisal.
Write off the asset (recognize it has become worthless)
This is the simplest one in terms of the accounting. You simply remove the asset and recapture the depreciation. If the asset for some reason is not fully depreciated then the nu-depreciated portion will be your loss on disposition, but in most cases an asset in this class will be fully depreciated and the Journal Entry is very simple: