If A Company Fails To Record A Sale Of Fixed Asset

If a company fails to record a Sale of Fixed Asset / Non Current Asset, then it affects both Income Statement and balance sheet. In order to understand the effects made on these Financial Statements due to the lack of recording of Sale or Disposal of Fixed Asset, we firstly understand the possible journal entries related to the sale of fixed asset and then see the effects of relevant accounts on financial statements.

Possible Effects of not recording Sale or Disposal of Fixed Assets

 

There are three possibilities on the sale of non current assets which can be expressed as shown below:

 

Gain / Loss Or No Gain No Loss On Sale of Fixed Asset

 

(i) Depreciation for the period is charged to expense is not recorded so it overstates Net income in Income Statement.

(ii) Gain or Loss is not recorded in Income Statement which affects net Income i.e. increases or decreases it.

(iii) Cash as a Current Asset is not recorded, so it affects balance sheet which decreases total assets.

(iv) Sale of fixed asset is not recorded, so net value of fixed asset is recorded in balance Sheet which increases Total Assets on Assets Side.