Double-entry bookkeeping: When selling an asset, does the money come from, Equity or Income?

Question

I use a double-entry system (ledger) to manage my personal finances. I have set it up so that the only entries in my Equity are my opening balances.

If I sell an asset (e.g. laptop) whose value I hadn't accounted for previously, the money goes into my bank account (assets), but where should the money come from?

Something like this?

Description      Account                Funds In    Funds Out
-------------------------------------------------------------
Sale of laptop
                 Income:Sale of assets              $500.00
                 Assets:Bank account    $500.00

Or this?

Description      Account                Funds In    Funds Out
-------------------------------------------------------------
Sale of laptop
                 Equity:Sale of assets              $500.00
                 Assets:Bank account    $500.00

Am I approaching this the right way, or am I completely off track?

Bonus question: what's a better name for that account than Sale of assets?

Thanks!

score 7 · Accepted Answer · 2017-07-05T20:14:27.423

There are basically two approaches, based on how detailed you want to be in your own personal accounting:

As you say, just transfer from an Income account. (Calling it "Sale of Assets" sounds fine to me.) Especially if you're not tracking it for some tax purpose, and just want looking at your Checking account (or whatever) to make some semblance sense, it will work just fine.
The more complex approach is that you're realizing "Wow, I had some assets all along that I'd forgotten to track!" So, create an Asset account for "Laptop", and create an "Opening Balance" transfer from Equity to it, just like when you opened all your other accounts. For extra complexity, you may even want to backdate it to the date you're starting all your other opening balances, and maybe even track the difference between its basis and current value so you know the capital gain involved. (Going to that degree is probably only worthwhile if there's a chance that your capital gain is positive and thus taxable in your jurisdiction.) And then, now that you have an appropriate Asset and have tracked that you did in fact have that value, treat the sale as a transfer to your Bank Account.

Obviously the more like a business or like "real" accounting you want to be, the more complex you can make it, but in general I find that the purpose of personal accounting is (1) to track what I own, and (2) to ensure I have documented anything I need to for tax purposes, and as long as you're meeting those goals any reasonable approach is workable.

score 0 · Answer 2 · answered Jul 04 '17 at 16:40

It's better to use the accounting equation concept:

Asset + Expenses = Capital + Liabilities + Income

If you purchase an asset: Suppose you purchased a laptop of $ 500, then its journal will be:

Purchase of Laptop....Dr         500 (Asset acquired)

     To Bank or Cash A/C             500 (Funds Out)

If you sell the same Laptop for $ 500, then its entry will be:

Bank or Cash A/C... Dr          500 (Funds in)
   To Sell of Laptop A/C           500 (Asset Sold out)

score 0 · Answer 3 · answered Jul 04 '17 at 17:18

Selling an asset is not earning income. You are basically moving value from one asset (the laptop) to another (your bank account.) So you reduce the equity that is "value of all my electronics" and you increase the asset that is your bank account.

In your case, you never entered the laptop in some category called "value of all my electronics" so you don't have that to make a double-entry against. The temptation is high to call it income as a result. Depending on the reason for all this double-entry book-keeping for personal finances, that may be fine. Or, you can create a category for balancing and use that, and realize the (negative) value of that account doesn't mean much.

Double-entry bookkeeping: When selling an asset, does the money come from, Equity or Income?

3 Answers3