The Correct Reporting of Amounts for a Sold Delivery Truck
What is the correct reporting of the respective amounts for a sold delivery truck that originally cost $52800 and had a book value of $5280?
The correct reporting is $4800 as an investing cash flow on the statement of cash flows, and $480 as a loss on the income statement. When a company sells a delivery truck, the proceeds from the sale are reported as an investing cash flow on the statement of cash flows because it represents a cash inflow from the sale of a long-term asset. In this case, the sale of the truck generated $4800 in cash. The difference between the selling price ($4800) and the book value ($5280) represents a loss on the sale of the truck. This loss of $480 is reported on the income statement as an expense. The correct reporting is to show the $4800 as an investing cash flow on the statement of cash flows and the $480 as a loss on the income statement. This accurately reflects the cash flow from the sale of the truck and the financial impact of the loss on the company's income.
Understanding the Reporting of a Sold Delivery Truck
Investing Cash Flow: When a company sells a long-term asset like a delivery truck, the cash received from the sale is categorized as an investing cash flow. This is because the sale of a fixed asset results in a cash inflow that affects the company's investing activities.
Income Statement: The difference between the selling price of the truck and its book value represents a gain or loss on the sale. In this case, the company incurred a loss of $480 due to selling the truck for less than its book value. This loss is reported on the income statement as an expense, impacting the company's profitability for the period in which the sale occurred.
By reporting $4800 as an investing cash flow on the statement of cash flows and $480 as a loss on the income statement, the company accurately reflects the financial implications of selling the delivery truck. This reporting method ensures transparency in showcasing the cash flow from the sale of the asset and the corresponding impact on the company's financial performance.