Final answer:
The key difference between the journal entries for retired assets and sold assets is that the entry for a retired asset does not include cash transactions, whereas the entry for a sold asset involves recording the proceeds from the sale.
Step-by-step explanation:
The journal entry for a retired asset differs from the journal entry for a sold asset primarily in terms of cash flow and the recognition of gains or losses from the transaction. When an asset is retired, it means it has been removed from use and derecognized from the company's balance sheet without any proceeds from a sale. The entry typically includes:
- A debit to accumulated depreciation for the total accumulated depreciation of the asset
- A debit to any loss on disposal if the book value of the asset exceeds its residual value
- A credit to the asset account for the original cost of the asset
In contrast, when an asset is sold, the journal entry reflects the actual cash or other consideration received and may include:
- A debit to cash or accounts receivable for the proceeds from the sale
- A debit to accumulated depreciation for the total accumulated depreciation of the asset
- A debit or credit to loss on disposal or gain on disposal, respectively, depending on whether the asset was sold for less or more than its book value
- A credit to the asset account for the original cost of the asset
Therefore, the correct answer is:
a. The entry for the retired asset does not include a debit to cash, but the entry for the sold asset does.
In summary:
- No cash is involved in the retirement of an asset.
- A gain or loss on disposal is recognized only if there is a respective surplus or deficit in the proceeds upon selling the asset when compared to its book value.
- The accumulated depreciation is reversed out in both scenarios.