Purchase And Sale of Machinery And Plant Journal Entries In Accounting

Purchase of Machinery And Plant Journal Entries | Sale of Machinery And Plant Journal Entries

The journal entries related to purchase and sale of machinery and plant, which is a Fixed Asset / Non Current Asset depend upon whether the plant & machinery purchased and sold for business use or for resale purposes. If the machinery and plant is used for business use, then we record purchase and sale journal entries accordingly and if it is not purchased and sold for business use but for resale purposes, then we record the entries accordingly.

1. When Plant & Machinery Purchased & Sold For Business Use

In that case, we debit Machinery & Plant Account and credit cash account if these sold for cash.

The entry is shown below:

                                              Machinery & Plant a/c  XXX

                                                                                  Cash a/c  XXX

                                                        (Machinery & Plant Purchased For Cash)

When machinery & plant account purchased on account or credit, then we record the following entry as shown below:

                                        Machinery & Plant a/c  XXX

                                                                             Accounts Payable a/c  XXX

                                              (Machinery & Plant Purchased On Account)

Now, in case of sale of Machinery & Plant of Rs. 25000 due to obsolescence after 4 years of purchase used for business / office use, we record the following entry:

(Assuming, that the business gains on the sale or disposal of Machinery & Plant account)

Accumulated Depreciation - Machinery & Plant a/c 20000

Cash a/c 8000

                                                                    Machinery & Plant a/c  25000

                                                                   Gains on Sale of Machinery & Plant a/c  3000

                                       (Gains on sale of Machinery & Plant Account)

In the above entry, if the machinery & plant is sold on credit then we debit Accounts Receivable / Debtor instead of Cash Account.

2. When Machinery & Plant Purchased And Sold For Resale Purposes

In that case, we used terms “Goods Purchased” or “Goods Sold” because now machinery & plant are traded on daily basis by the business for resale purposes and not to use these in the business.

So, now Purchases Account and Sales Account are used instead of Machinery & Plant Account.

For Machinery & Plant sold for Cash , we record the following entry:

                                                      Purchases a/c  XXX

                                                                             Cash a/c  XXX

                                          (Goods Purchased For Cash)

For Machinery & Plant Purchased on Credit / Account:

                                                       Purchases a/c  XXX

                                                                             Accounts Payable a/c  XXX

                                            (Goods Purchased On Account)

When Machinery & Plant sold for cash, then the entry is shown below:

                                                               Cash a/c  XXX

                                                                              Sales a/c  XXX

                                                  (Goods Sold For Cash)

When Machinery & Plant Sold on credit or account, then:

                                     Accounts Receivable a/c  XXX

                                                                              Sales a/c  XXX

                                            (Goods Sold On Account)