 Eventually, plant assets need to be replaced. The most common reasons are they wear out, or become obsolete, or just become too costly to continue to repair. Generally, there are three ways to dispose of plant assets. The first is to scrap or retire an asset. The second is to sell an asset. The third is to trade or exchange an old asset for a new one. This video will focus on the accounting for selling an asset. When we sell a plant asset, there are a few steps we need to do in order to make the proper journal entry. The first step is to record depreciation expense as of the scrap date. It is unlikely that accumulated depreciation account has the correct balance already. Next, we need to remove the asset from our balance sheet. We do this by zeroing out the plant asset and accumulated depreciation account. Finally, we need to record the amount of cash we sold the asset for and any gain or loss related to the selling of an asset. Let's look at an example. Charlotteson, UK sells an old delivery truck on June 30, 2018 for $6,000. The truck's original cost was $40,000. As of December 31, 2017, the total amount of accumulated depreciation was $35,000. Annual depreciation is $5,000 per year. So let's first get the depreciation up to date. What is the journal entry to record depreciation expense? The adjusting entry to record depreciation expense is a debit to the account depreciation expense and a credit to the account accumulated depreciation. In this example, if the annual amount of depreciation on the truck is $5,000 and we need to depreciate it for half a year, then the amount needed to be recorded is $2,500. Once I've posted this journal entry, you can see the new up to date balance and accumulated depreciation is $37,500. All right, so now let's record the journal entry to sell this asset on June 30. I think the simplest way to record disposal of asset journal entries is to start with the accounts and the amounts you know. In this case, we need to debit cash for $6,000 that we sold the truck for. Also we need to debit accumulated depreciation and for the balance of $37,500. This will remove depreciation, excuse me, accumulated depreciation from the books. We also need to credit truck and its balance of $40,000. This will remove trucks or truck from our books. So you can see the journal entry doesn't balance. We need a credit of $3,500 to make it balance. In this case, we incurred a gain when selling this asset. Gains are like revenues. They have a normal credit balance and they increase net income. When the fair market value of an asset is greater than the book value of an asset, then we have a gain. The amount of the gain is the difference between the fair market value and the book value. But it's also the plug number needed to make this journal entry balance. So you could have correctly arrived at a gain of $3,500 for the sale of asset either way. Finally, what if I change this example so that the old truck was sold for $2,000 rather than $6,000? Let's see what changes and what doesn't change in these journal entries. The adjusting entry to get depreciation recorded up to date is exactly the same. For the ending balances in truck, the truck account and accumulated depreciation account are exactly the same. Again, I'm going to start with what I know so I enter cash, accumulated depreciation, and truck into my journal entry. But notice now that I'm not missing a credit to make this balance. I'm missing a debit. Recall that losses have normal debit balances. I need to record a loss of $500 on the sale of this asset. The loss is $500 because the book value of $2,500 is greater than the fair value of $2,000.