Assets & depreciation · Level: Exam specials
Journal entry: Selling an asset at a profit
If the selling price is above the carrying amount, there is a profit. One entry: Bank / asset (carrying amount), Profit on disposal and Output VAT.
Worked example
We sell a used delivery van (carrying amount £2,500.00) for £4,200.00 plus 20% VAT, paid into the bank. Book it in one entry.
Correct journal entry
Bank £5,040.00 / Vehicles £2,500.00, Profit on disposal £1,700.00, Output VAT £840.00
Debit
Bank£5,040.00
Credit
Vehicles£2,500.00
Profit on disposal£1,700.00
Output VAT£840.00
Why?
- Bank: asset increases → debit
- Vehicles: asset decreases → credit
- Profit on disposal: income earned → credit
- Output VAT: liability increases → credit
Calculation
- VAT: 20% of £4,200.00 = £840.00
- Gross amount: £4,200.00 + £840.00 = £5,040.00
- Profit: £4,200.00 − £2,500.00 = £1,700.00
Typical mistake
Crediting the whole price to income and leaving the asset on the books.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
We sell a used delivery van (carrying amount £3,200.00) for £5,400.00 plus 20% VAT, paid into the bank. Book it in one entry.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for selling an asset at a profit?
Example: Bank £5,040.00 / Vehicles £2,500.00, Profit on disposal £1,700.00, Output VAT £840.00.
How do I recognise this case?
If the selling price is above the carrying amount, there is a profit. One entry: Bank / asset (carrying amount), Profit on disposal and Output VAT.
What is the typical mistake?
Crediting the whole price to income and leaving the asset on the books.