An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads: Non-Current Assets Current Assets The asset may be sold for several reasons such as: An asset is fully depreciated. It should be sold becaRead more
An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads:
- Non-Current Assets
- Current Assets
The asset may be sold for several reasons such as:
- An asset is fully depreciated.
- It should be sold because it is no longer needed.
- It is removed from the books due to unforeseen circumstances.
The journal entry for profit on the sale of assets will be:
| Cash / Bank A/c | Debit |
| To Asset A/c | Credit |
| To Profit on Sale of Asset A/c | Credit |
| (Being sale of an asset made with a gain) |
According to the golden rules of accounting, in the above entry “Cash/Bank A/c” it is a Real Account and the rule says “Debit what comes in” and so is debited.
“Asset A/c” is a real account and the rule says “Credit what goes out” and so is credited. Any Gain on sale of an asset goes to the Nominal account and according to the rule “Credit, all incomes and gains” and so is credited.
The journal entry for loss on sale of the asset will be:
| Cash / Bank A/c | Debit |
| Loss on Sale of Asset A/c | Debit |
| To Asset A/c | Credit |
| (Being sale of an asset made and loss incurred) |
In the above entry, “Loss on Sale of Asset” is debited because according to Nominal account rules “Debit all losses and expenses” and so is debited.
According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenue, and decreases assets and expenses.
| Cash / Bank A/c | Debit | Increases Asset |
| Loss on Sale of Asset A/c | Debit | Increases Expenses |
| To Asset A/c | Credit | Decreases Asset |
| To Profit on Sale of Asset A/c | Credit | Increases Expenses |
For example, Mr. A sold furniture for $2,500 and incurred a loss on the sale which amounted to $2,500.
According to modern rules, the journal entry will be:
| Particulars | Amt | Amt | |
| Cash / Bank A/c | 2,500 | Increase in asset | |
| Loss on Sale of Asset A/c | 2,500 | Increase in expenses | |
| To Asset A/c | 5,000 | Decrease in asset | |
| (Being sale of an asset made and loss incurred) |
Shareholder's Equity Meaning - Shareholder's Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It Calculation of Shareholder's Equity Method 1 Shareholder's Equity = TotalRead more
Shareholder’s Equity
Meaning – Shareholder’s Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It
Calculation of Shareholder’s Equity
Method 1
Shareholder’s Equity = Total Assets – Total Liabilities
Method 2
Shareholder’s Equity = Share Capital + Retained Earnings – Treasury Stock/Treasury Shares
Components of the Shareholder’s Equity
From the above Method 1, it can be understood that shareholder’s equity comprises of
Net Assets = Current Assets + Non-current Assets, reduced by
Net liabilities = Current liabilities + Long-term liabilities
where Long-term liabilities = Long-term debts + Deferred long-term liabilities + Other liabilities
Also from the method 2,
Share Capital = Outstanding shares + Additional Paid-up share capital
Retained Earnings are the sum of the company’s earnings after paying the dividends
Treasury stocks = Shares repurchased by the company
Example of Shareholder’s Equity
The shareholder’s Equity is represented in the Balance Sheet as below;
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