Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
A form of final account
Asset disposal accounts are like miniature trading, profit and loss accounts: they are final accounts, and not going on any further. Once written up, with their one and only set of entries, they are balanced and carried down to show the profit or loss on the asset disposal concerned. The account will then remain untouched until such figure is transferred to the profit and loss account. The trading, profit and loss account reports all the revenues and expenses of a business at once. In contrast, asset disposal accounts only report particular transactions, in other words the disposal of individual assets. You write up a separate asset disposal account for each asset disposed of, such as a motor van or machine.
Three pairs of postings
With the asset disposal account you will need to make three pairs of postings:
- transfer the asset concerned from its asset account to your new asset disposal account;
- transfer the provision for depreciation from its own account to your asset disposal account;
- post the sale proceeds to your asset disposal account, with the counterpart posting to cash, bank, or a personal ledger account if sold on credit.
The resulting profit or loss
The balance c/d on the asset disposal account will then represent a profit (if credit) or loss (if debit) on sale of asset. In the end, along with all the other revenue and expense account balances, it will go to the trading, profit and loss account.