When a business purchases a new asset such as a motor vehicle, it is quite common to trade in or part exchange and old asset to satisfy part of the new asset purchase cost.
A business buys networking equipment to the value of 12,000 and funds the purchase with a down payment in cash of 3,000 and the balance on credit terms form the supplier of the equipment.
The double entry bookkeeping is recorded using this equipment purchase compound journal entry.
The fixed assets journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of fixed assets.
In each case the journal entries show the debit and credit account together with a brief narrative.
When a business has a disposal of fixed assets, the original cost and the accumulated depreciation to the date of disposal relating to those fixed assets must be removed from the accounting records. A disposal of fixed assets can occur when the asset is scrapped and written off, sold for a profit to give a gain on disposal, or sold for a loss to give a loss on disposal.
Fixed assets have a long life and are for use within the business and not held for resale. They are not part of the trading inventory, and are not involved in the day to day working capital cycle of the business so are not readily convertible into cash.