On january 1 2015 Equipment costing 100000 was purchased Dep

On january 1, 2015, Equipment costing $100,000 was purchased. Depreciation of $42,000 was taken for 2015. On december 31st the equipment was sold for $50,000. prepare the journal entries to record the purchase, depreciation and sale transactions.

Solution

Date

Account Titles and Explanation

Debit

Credit

Jan 1, 2015

Equipment A/c

$ 100000

Cash A/c

$ 100000

Being Purchase of Equipment

As per real account principle, Debit what comes in and credit what goes out and accordingly, we debit Equipment A/c and credit Cash A/c

Dec 31, 2015

Depreciation A/c

$ 42000

Accumulated Depreciation - Equipment

$ 42000

Being provision for Depreciation

As per Nominal Account Principle, we have to debit all Expenses and losses and credit all incomes and gains accordingly we have debited Depreciation. Accumulated Depreciation is an account which reduces the value of the asset and hence credited.

Dec 31, 2015

Cash A/c

$ 50000

Accumulated Depreciation - Equipment

$ 42000

Loss on Disposal of Equipment ($ 100000 - $ 50000 - $ 42000)

$ 8000

Equiment A/c

$ 100000

Being sale of Equipment and recognition of loss thereon

As per real account principle, Debit what comes in and credit what goes out and accordingly, we Credit Equipment A/c and debit Cash A/c. As per Nominal Account Principle, we have to debit all Expenses and losses and credit all incomes and gains accordingly we have debited loss on sale of Equipment.