Disposal of assets – sale of asset _ accountingcoach

If a company disposes of (sells) a long-term asset for an amount different from its recorded amount in the company’s accounting records (its book value), an adjustment must be made to net income on the cash flow statement.

For example, let’s say a company sells one of its delivery trucks for $3,000. As 3 cash flow statement format in excel That truck is shown on the company records at its original cost of $20,000 less accumulated depreciation of $18,000. Depreciation expense cash flow statement When these two amounts are combined (“netted together”) the net amount is known as the book value (or the carrying value) of the asset. Cash flow statement depreciation In the example, the book value of the truck is $2,000 ($20,000 – $18,000).

Because the proceeds from the sale of the truck are $3,000 and the book value is $2,000 the difference of $1,000 is recorded in the account Gain on Sale of Truck—an income statement account.


What is the cash flow statement The transaction has the effect of increasing the company’s net income. Cash flow proforma sample If the truck had sold for $1,500 ($500 less than its $2,000 book value), the difference of $500 would be reported in the account Loss on Sale of Truck and would reduce the company’s net income.

One of the rules in preparing a statement of cash flows is that the entire proceeds received from the sale of a long-term asset must be reported in the second section of the statement, the investing activities section. Creating a cash flow statement This presents a problem because any gain or loss on the sale of an asset is also included in the company’s net income which is reported in the first section—operating activities. Cash flow statement model To avoid double counting, each gain is deducted from net income and each loss is added to net income in the operating activities section of the cash flow statement.

On July 1 Matt decides that his company no longer needs its office equipment. What is a cash flow statement Good Deal used the equipment for one month (May 31 through June 30) and had recorded one month’s depreciation of $20. Uses of cash flow statement This means the book value of the equipment is $1,080 (the original cost of $1,100 less the $20 of accumulated depreciation). Financing cash flow statement On July 1 Good Deal sells the equipment for $900 in cash and records a loss of $180 in the account Loss on Sale of Equipment on its income statement. Preparing a cash flow statement example There were no other transactions in July.

• Net income for July was a net loss of $180. Depreciation of machinery cash flow statement There were no revenues, expenses, or gains, but there was an entry of $180 in the account Loss on Sale of Equipment.

• There was no depreciation expense in July, and current assets and current liabilities did not change in July, so cash was not affected. Cash flow statement dividends (We could have omitted the line “Depreciation Expense”.)

The summation of the amounts on the cash flow statement is a positive cash inflow of $900. Step by step cash flow statement This amount agrees to our check figure—the increase in the Cash account balance from June 30 to July 31.

• Included in the net income for the seven months is $20 of depreciation expense. Importance of cash flow statement analysis This expense reduced net income but did not reduce the Cash account; therefore we add the $20 depreciation expense to the net income.

• Also included in net income is the $180 entry into the Loss on Sale of Equipment account. Cash flow statement template direct method This loss was reported on the income statement thereby reducing net income but not reducing cash. Components of a cash flow statement (The cash received from the sale of the equipment appears in its entirety under the investing activities section of the cash flow statement.)

• Inventory on July 31 is $200 (4 calculators at a cost of $50 each). Meaning of cash flow statement in accounting Since the company began with no inventory, this increase in the Inventory account means that $200 of cash was used to increase inventory.

• Supplies increased from none to $150. Wikipedia cash flow statement The increase in the Supplies account is assumed to have had a negative effect of $150 on the Cash account.

• Combining the amounts so far, we see that the cash from operating activities is a negative $50. Format cash flow statement In other words, rather than providing cash, the operating activities used $50 of cash.

• There is cash outflow (or payment) of $1,100 to purchase the office equipment on May 31 and the $900 of cash inflow (or receipt) from the sale of the office equipment on July 1. Cash flow income statement balance sheet Combining these two amounts results in the net outflow (“cash used in investing activities”) of $200.

The statement of cash flow’s bottom line amount of $1,750 results from combining the amount totals of the previous three sections—operating, investing, and financing activities. Summary cash flow statement This $1,750 agrees to the check figure—the difference in the Cash account balance from the beginning of January to July 31.

Whether you are a business person or student of business, our Master Set of 87 Business Forms will assist you in preparing financial statements, financial ratios, break-even calculations, depreciation, standard cost variances, and more.

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