Sale of Assets If an asset is sold, the cash received is debited, accumulated depreciation is debited, and the asset is credited. For example, if the Paul Company sold the equipment on January 1, 1995, for $3,200, its book value, the following general journal entry is necessary to record this transaction: This entry removes both the asset account and the associated accumulated depreciation account from the company books since the company no longer owns the asset. It is relatively rare that assets are sold for exactly their book value. Frequently, the amount received is greater or smaller than the book value of the asset. If the same asset described above is sold for $3,500, Paul Company experiences a gain on the transaction. The company is disposing of an asset with a book value of $3,200 but is receiving $300 more cash. The general journal entry to record this transaction is: Conversely, if the same equipment is sold for $2,500, Paul suffers a loss on the transaction. The company is giving up an asset with a book value of $3,200 but is receiving only $2,500, a difference of $700. The general journal entry to record this situation is: Gain or loss accounts resulting from the sale of property, plant, and equipment assets are closed to the Income Summary account and appear on the income statement. Gains on the sale of assets are taxable income, and losses on the sale of assets are deductible for tax purposes. Involuntary Loss or Abandonment of Assets Involuntary losses of assets are losses due to factors beyond the control of the business, such as fire, theft, accident, or condemnation by governmental authorities. In many cases companies purchase insurance that provides partial or total recovery for the loss of the assets. If the loss is a result of negligence by other parties, recovery from the responsible parties or their insurance companies may be possible. If an asset is destroyed, both the asset and the related accumulated depreciation must be removed from the books. Any recovery from insurance companies or others reduces the amount of the loss. For example, if the asset owned by Paul Company is destroyed by fire on January 1, 1995, and the company had insurance coverage that provided a recovery for the loss in the amount of $2,500 a short time later, the appropriate general journal entries are: Note that the first entry removes the equipment from the books and establishes a loss account. Accounting for the abandonment or scrapping of an asset is similar to accounting for sales or uninsured casualty losses. The asset and the related accumulated depreciation are removed from the books. If there are no proceeds from the disposal, as is the case in an outright aban-donment, the entire book value of the asset is debited to an account such as Loss Due to Abandonment. The sale of an asset to a scrap dealer for an amount far below its book value is accounted for in the same manner as the ordinary sale described above but results in a larger loss.