Proceeds minus carrying amount, and the sign of the plug

One formula, one entry shape

When an asset leaves the books — sold, scrapped, destroyed, expropriated — the entry always does three things: brings in whatever was received, removes the cost and the accumulated depreciation, and plugs the difference:

$$\text{Gain (loss)}=\text{Proceeds}-\text{Carrying amount}$$

A positive result is a gain (a credit); a negative result is a loss (a debit). The carrying amount is the updated one from L3.1 — for Harbourline's truck at 30 September 2025, cost 90,000, accumulated depreciation 60,000, carrying amount 30,000.

Worked example — sold for $35,000

Proceeds 35,000 − carrying amount 30,000 = gain 5,000.

Dr Cash                                 35,000
Dr Accumulated Depreciation—Truck       60,000
    Cr Truck                                    90,000
    Cr Gain on Disposal                          5,000

Read the entry as removing the asset in both of its pieces. The Truck account had a debit balance of 90,000, so it is credited to remove it. Accumulated Depreciation had a credit balance of 60,000 — it is a contra-asset — so it is debited to remove it. Cash comes in. The gain is whatever makes it balance: 35,000 + 60,000 = 95,000 of debits against 90,000 of credits leaves 5,000 to credit.

The gain is not Sales Revenue. Harbourline is not in the business of selling trucks; a gain on disposal is a separate line, usually in other income, and it is the difference between proceeds and carrying amount, never the whole $35,000.

Sold for $22,000

Proceeds 22,000 − 30,000 = loss 8,000. The plug moves to the debit side:

Dr Cash                                 22,000
Dr Accumulated Depreciation—Truck       60,000
Dr Loss on Disposal                      8,000
    Cr Truck                                    90,000

Retired for nothing

Suppose instead the truck is scrapped with no proceeds. Proceeds 0 − 30,000 = loss 30,000: the entire carrying amount. "There are no proceeds, so there is no entry" is wrong — the asset must still come off the books, and the loss is the largest of the three cases.

Dr Accumulated Depreciation—Truck       60,000
Dr Loss on Disposal                     30,000
    Cr Truck                                    90,000

Destroyed, with insurance

The truck is written off in a collision and the insurer pays $28,000. Insurance proceeds are simply proceeds: 28,000 − 30,000 = loss 2,000.

Dr Cash                                 28,000
Dr Accumulated Depreciation—Truck       60,000
Dr Loss on Disposal                      2,000
    Cr Truck                                    90,000

The $28,000 is not Insurance Revenue; there is no such income. An involuntary disposal is accounted for exactly like a sale — proceeds against carrying amount — and if the insurer had paid 33,000 the plug would have been a 3,000 gain. Expropriation by a government works the same way. (A donation of an asset is recorded at fair value with the gift as an expense; it is outside the midterm's set.)

The pattern to carry

Four disposals, one shape. Proceeds in (if any); accumulated depreciation debited out; cost credited out; the plug on whichever side balances. If you are ever unsure of the sign, total the debits and credits without the plug — the side that is short is the side the plug goes on.