Review Journal Entries for Retirement Transactions

You can record journal entries that are used for retirements. When your company retires an asset and creates journal entries for that period, the retirement process creates journal entries for your general ledger for each component of the gain or loss amount.

Assets creates journal entries for either the gain or the loss accounts for:

• Proceeds of sale

• Cost of removal

• Net book value retired

The retirement process also creates journal entries to clear the proceeds of sale and cost of removal. Let's say your company sets up distinct gain and loss accounts for each component of the gain or loss amount. The retirement process creates multiple journal entries for these accounts and enables different sets of retirement accounts for retirements that result in a gain and retirements that result in a loss.

Scenario

Let's say your company bought a machine and put it in service in year 1, quarter 1.

• Asset cost: 4,000

• Useful life: 4 years

• Depreciation: straight-line

• Retired: year 3

Journal Entries for Retirements

You retire the asset and sell it for 2,000.00. The cost to remove the asset is 500.

Because your company sets different accounts for the net gain or loss in the transaction, it realizes a gain with this transaction. Credit the asset retirement cost, the gain from the proceeds, and the removal clearing accounts by 2,000, 4,000, and 500, respectively. Debit the accumulated depreciation 2,500 to net out the existing account balance. The Proceeds of Sale Clearing account balances with the prior Proceeds of Sale Clearing account. The Cost of Removal Gain account reflects the cost of removing the asset and the Net Book Value Retired Gain account indicates the book asset value net of depreciation.

Journal Entries

This table shows the journal entry created in Receivables for the receipt of proceeds of asset sale:

Account	Debit	Credit
Bank	2,000 USD	None
Proceeds of Sales Clearing	None	2,000 USD

This table shows the journal entry created in Payables for the cost of removal of the asset:

Account	Debit	Credit
Cost of Removal Clearing	500 USD	None
Bank	None	500 USD

This table shows the journal entries created for the accumulated depreciation, proceeds of sale and cost of removal gain, and the net book value retired gain of the asset:

Account	Debit	Credit
Accumulated Depreciation	2,000 USD	None
Proceeds of Sale Clearing	2,000 USD	None
Cost of Removal Gain	500 USD	None
Net Book Value Retired Gain	2,000 USD	None
Asset Cost	None	4.000 USD
Proceeds of Sale Gain	None	2,000 USD
Cost of Removal Clearing	None	500 USD

The retirement process calculates gain and loss using this formula:

• Gain or Loss on Retirement = Proceeds of Sale - Cost of Removal - Net Book Value Retired + Revaluation Reserve Retired

If the result is positive, it's a gain. Otherwise, it's a loss.

View the gain and loss results on the Asset Inquiry page or the Asset Retirements Report.

If you want only the net result charged to your gain or loss accounts, you can:

• Navigate to the Manage Asset Books page.

• Enter the same default value for both the gain and loss accounts.

To generate a journal entry that shows the net gain or loss for retirement transactions on a single line:

• Modify the subledger accounting method.

• Enable the Merge Matching Lines option in the corresponding journal line definition for each account in the gain and loss formula.

The retirement process creates a journal entry for net gain or loss as shown in this table:

Account	Debit	Credit
Accumulated Depreciation	2,000 USD	None
Proceeds of Sale Clearing	2,000 USD	None
Asset Cost	None	4,000 USD
Cost of Removal Clearing	None	500 USD