Question

How would an entry showing a loss on the sale of a piece of equipment be shown on the Cash Flow Statement? Show the entry below any explanation.

Answer 1

• The normal journal entry to record the sale of equipment, in case of loss, would be:

Accounts title	Debit	Credit	Working
Cash	$20,000		[amount at which the equipment was sold]
Accumulated Depreciation	$5,000		[total depreciation of equipment sold at the time of sale]
Loss on sale of equipment	$10,000		[Book value - sale price]
Equipment		$35,000	[cost of the equipment sold]

• The above journal entry of sale will affect Statement of Cash Flows in the following manner:

#1 Loss on sale of Equipment of $ 10000 will be ADDED to Net Income as adjustment under “Operating activities” section (in case of Indirect Method). If it was a case of “Gain”, the amount of GAIN would be deducted from Net Income as adjustment.

#2: Amount of Cash received of $ 20,000 will be shown as CASH INFLOW under Investing activities.