Disposal of Fixed Assets in QuickBooks
In business, we do dispose of Fixed Assets after it usable life. In QuickBooks, how are we going to record this transaction?
Example 1:
Acquisition cost of a Conference Table (Under Furniture & Fitting) is $3,000.00. The depreciation method used for Furniture & Fitting is a straight line method; with 3 years of usable life.
If this conference table still has 1 year of usable life; That is, the Net Book Value of this conference table is $1,000.00.
How to record this transaction in QuickBooks?
First, we need to create a new Disposal of Fixed Asset account (use Other Income account type, this account will be shown in the Profit & Loss report). Next, we create a General Journal:
Debit Accumulated Depreciation – Furniture & Fitting account: 2,000.00
Debit Disposal of Fixed Asset account: 1,000.00
Credit Acquisition cost – Furniture & Fitting account: 3,000.00
In the Balance Sheet report, both the Acquisition cost and Accumulated Depreciation account of the Furniture & Fitting will be zeroed off. As for the Profit & Loss report, it will show a debit balance (loss) in the Disposal of Fixed Asset account for the amount of $1,000.00.
Example 2:
Now, if you sell this conference table at $1,500.00 (that is, with a gain of $500.00); how are you going to record this transaction?
In the General Journal:
Debit Accumulated Depreciation – Furniture & Fitting account: 2,000.00
Debit Cash at Bank: 1,500.00
Credit Acquisition cost – Furniture & Fitting account: 3,000.00
Credit Disposal of Fixed Asset account: 500.00
Note: Debiting the Cash at Bank account will be the amount of money you get from the sale of Fixed Asset. In this case, you do had a gain in sale of Fixed Asset. The crediting of Disposal of Fixed Asset account, for the amount of $500.00, is the profit made from the sale of Fixed Asset.
Why the profit from this sale was only $500.00 and not $1,500.00? In this case, we have to consider the fact that this fixed asset still has a year of depreciation (that is, $1,000.00). So, the gain from the sale of fixed asset is $1,500.00 – $1,000.00 = $500.00.
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It is important to set a capitalization threshold in line with your company’s goals. A higher threshold will allow for simpler tracking of fixed assets and less property tax due annually. A lower threshold will allow for more control of tracking fixed assets more accumulated depreciation expense.