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This is very simple but I'm having trouble figuring out how to account for the sale of an asset, in double-entry bookkeeping, in a way that shows the net proceeds going to cash AND recorded as a capital gain.

Assume you have an asset worth $1000. When you sell the asset you enter a transaction that reduces the asset value to zero and increases your cash balance to $1000. What is the corresponding transaction that shows the capital gain? Clearly one side is an increase in an income account (Capital Gains) but where does the balancing entry go?

I found this question but it doesn't seem to address my simple situation.

Here's some detail:

Transaction          Asset     Cash     CapGain     ????
=================  ========  ========  ========  ========
Initial Balance       1000       

Record Cap Gain      -1000               +1000
Cash                           +1000               -1000

     or expressed the other way

Cash                 -1000     +1000
Record Cap Gain                          +1000     -1000
  • If your initial asset balance is $1K, and you sold it for $1K - then your capital gain is $0. – littleadv Feb 1 '14 at 21:55
  • @littleadv D'Oh!... you are of course right, I was forgetting the accumulated depreciation. The CG is the difference between the depreciated value and the sales price. If you want the rep and post this as an answer I'll accept it. – Jim Garrison Feb 2 '14 at 1:17
  • I already posted it as an answer:-) Pay attention: the asset should be booked at its basis value. Depreciation reduces the basis (you should also have a depreciation account as an expense). So if your asset is fully depreciated - the asset account should be $0. – littleadv Feb 2 '14 at 1:49
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Asset is recorded, at value that is its basis. So when you sell it, you credit the asset with the sale price (debiting cash), and then debit it back to 0 crediting the capital gains account.

Pay attention: the asset should be booked at its basis value. Depreciation reduces the basis (you should also have a depreciation account as an expense).

  • Don't debits increase asset values? I would have thought you'd credit the asset and debit the capital gain. But that just moves the question to the cash side. Please see my edits to the question. – Jim Garrison Feb 1 '14 at 21:15
  • You're right, of course – littleadv Feb 1 '14 at 21:54

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