Sold machinery for cash journal entry

The Sale of the Fixed asset is not a routine business transaction. However, that does not mean it shall not happen at all. There will be a specific period for which an asset will function, considering the normal wear and tear. Sold Machinery for Cash Journal entry is to remove the asset GL account from books and record profit or Loss from Sale.

Estimated reading time: 5 minutes

Understanding the nature of the transaction is a prerequisite for recording the journal entry. The GL accounts which are part of this transaction are –

1. Machinery
2. Cash or Bank A/c
3. Profit or Loss from the transaction

Sold Machinery for Cash Journal Entry

We will debit the Cash or Bank account and credit the Machinery assuming no loss or profit. So, the cash realized is equal to the Machinery’s book value. This entry is applicable when there is no accumulated depreciation GL account.

Generally, there are two different approaches to depreciation accounting. Let’s see both approaches.

First Approach:

The accumulated depreciation GL account is disclosed in the balance sheet. So, we will disclose the Machinery at the gross value. It results in inflating the financial position. 

The depreciation entries will be

Second Approach:

We need to deduct the Annual Depreciation expenses from the Machinery. So, the Machinery value shown in the balance sheet is net of depreciation.

If there is an accumulated depreciation GL account, we need to remove both the Machinery and accumulated depreciation GL accounts.

For Instance, consider ABC Company with the following GL accounts.

• Gross Machinery Value Rs.80,000
• Accumulated Depreciation Rs.72,000
• Cash Rs.8,000

Let’s learn the journal entries with these account balances to record the Machinery sale transactions.

Journal entry is

What if there is a profit in Sold Machinery for Cash Journal Entry?

• Gross Machinery Value Rs.80,000
• Accumulated Depreciation Rs.72,000
• Cash Rs.10,000
• Profit Rs.2,000

Journal entry is

What if there is a loss in Sold Machinery for Cash Journal Entry?

• Gross Machinery Value Rs.80,000
• Accumulated Depreciation Rs.72,000
• Cash Rs.5,000
• Loss Rs.3,000

Journal entry is

 

Common Question and Answers

Which account will be credited when Machinery sold?

Machinery GL account will be on the credit side as the asset is going out of business per the real account golden rules of accounting. The second leg of the Journal entry hits the Cash GL as it’s coming into the business.

What is the journal entry for sold Machinery for cash?

The Journal entry for sold Machinery for cash is debiting the cash and accumulated depreciation and crediting the Machinery. If there is no accumulated depreciation, the machinery book value in the balance sheet will be net of depreciation. In other words, the machinery value per the balance sheet is the net amount.

If there is any profit, then Profit on Sale of Machinery GL will be credited in the journal entry.

When furniture is sold for cash, the entry should be made in?

The Sale of Furniture entry is similar to the Machinery. We need to replace the machinery account with the furniture account; refer to the above journal entry.

Where we will record machinery account?

Machinery Account is recorded as asset or inventory per the business’s nature. It generally depends on the entity’s business. Understanding the nature of the transaction is a prerequisite for recording the journal entry.

Previously when there were no accounting packages, Entries were recorded in various manual books like Cash books, bank books, purchase journals, Sales Journals, etc. However, there are no specific journal books for recording the machinery transactions. So, those transactions are recorded within the journal proper.

What is the journal entry for plant and Machinery?

The Journal Entry for Plant and Machinery is to debit it and credit the non-current liability assuming the payment for the purchase of Machinery does not happen immediately.

Machinery sold on cash appears on which side of creditors account

Machinery Sold on cash will affect the current liabilities as the settlement will happen in a short period

Conclusion:

Sold Machinery for cash Journal entry is to record the Sale by debiting the cash inflow and crediting the Machinery. There might be profits or Loss in this transaction depending on the agreement between the buyer and seller. So, we shall ensure to debit the Loss or credit the profit in the journal entry.