[bayviewlg]

How do you account for a trade-in of an old asset for a new one? Is the sales revenue that gets posted the full value of the new asset or the net value of the sale?

[morgaine300]

There is no sales revenue. "Sales" is when you're selling goods, not assets you've been using for your business.

This is a little tricky to explain, but I can try to get you started. What I do for this is write down every number I have. Some will be accounts and some will just be numbers needed to figure out other things. I then go through and record whichever ones are actual accounts. (On scrap paper first.) Then I go through the other stuff to calculate other values.

You need to reverse out both the asset itself and the associated accumulated depreciation. If this is mid-year, the depreciation must be caught up to current first. The difference between those two is book value. That isn't an account, but the mathematical value of it is sort of "built into" that entry. Then I would insert any cash that was paid, if any. And I would also insert the cost of the new asset. Those would all be numbers you should have.

From there, it depends on what else is going on. If it's not fully paid and a balance needs to go into some kind of payable, then you need to figure out what that is. That will be the cost of the new asset, less any cash paid down, less any trade-in value given. That leaves what is still due. Then I insert that into my entry.

Then you have to figure gain or loss. That's the difference between book value and the trade-in allowance. If you have a loss, that's a debit. (It's like an expense, which are always debits.) If you have a gain, you can't count it. But I personally like to stick that into the entry first (as a credit) and make sure everything is equalling on both sides. If so, then I can proceed to adjust it. (That's just my personal thing though.)

You have to just remove that gain. And you will reduce the amount of the gain from the cost of the new asset. That removes that amount from both debit and credit side and you remain equal. That's actually deferring the gain but that's a weird concept to understand if you're new to it.

Going about doing this is different than just having someone try to explain it. There isn't any way to just give you an entry, because there's too many factors affecting it. You need to just try it. If you don't like my method, do something different, but you have to make sure everything is there. Everything I covered must be done, if that portion does exist.

[deemandah]

trade in is simply the allowance that you are given for the asset as part exchange,any additional cash that you give for the new asset is not accounted in disposal.The cash price is only used when the cost of the new asset is not given.So you sum up the trade in Allowance with the cash price added to the agreed value.In disposal account credit with the trade in allowance and accumulated depreciation of the old asset and Debit the disposal account with the Cost of the old asset.If the balancing figure comes on the debit it's a profit on disposal,and if the balance appears on credit it's a loss on disposal of old asset.

[morgaine300]

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