and now we will learn the last part about flipping houses part three selling the property
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what happens when you sell the property well you no longer have the fixed asset in your
records called livingston street you no longer have the fixed asset in your records called
renovations or upgrades you do have more cash in the bank and you have a gain or a loss on the sale
those are the four things that are affected in your records when you sell the property
when you make the journal entry simply list each of these things separately and
everything will work out perfectly it will be the easiest transaction you ever recorded
before we do that we have to add an account or at least two accounts into your chart of accounts
you have to add an account called gain on the sale of property
and that has to be an other income type of account but just in case you might sell it as a loss
you should also add loss on the sale of property and we will make that an other income
excuse me other expense type of account so just as we did before we click accounting
chart of accounts then we click new and again this is an income type of account but actually
some people would consider it other income that's because it might not be your primary source of
income like rent if it's your primary source of income you can choose income output other income
and you can put interest other investment income other miscellaneous income but if you put
just income the better choice is other primary income i think that's the best if you normally
flip houses and of course we'll call it gain on sale of 110 livingston street so we type gain on
sale of 110 living stone street but then again you might have a loss so in that case you would make
an account that's an expense type of account and the detail type would be something like
uh let's see let's see if we can get a detail type there's nothing that really matches and
again it's not really a big deal so if we choose other expense maybe the detail type would be
better other expense something like uh yeah if it if nothing really matches then i guess it doesn't
really matter what you choose but the name of it should be loss on sale of 110 livingston
street
and then i click save and new or save and close really and you can see that
both of these accounts have been added to the chart of accounts so let's imagine
on july 31 we sold the house on 110 livingston street for a hundred and fifty thousand dollars
what will happen when you sell the property well in your records you no longer have that
fixed asset livingston street you should also no longer have the fixed asset renovations or
upgrades for livingston street because you sold the house you do have more cash in the bank
and you have either a gain or a loss on the sale so what do we do we record a journal entry and
each line of the journal entry acknowledges the money amount for each of the four things
that changed in your records at the moment you sold the house so this tab will show you
the trial balance beforehand shows the debit balance of a hundred thousand for the building
and a debit balance for the renovations now in order to wipe them out you have to make a
balancing credit to get them to go down to zero so you will not have them in your records anymore so
we click back here and in order to make a journal entry we click the plus sign and we go down and
choose journal entry now the date of the journal entry which is the date of the sale of the house
july 31st the first line here is the first thing we're acknowledging we no longer have the fixed
asset so we must excuse me we no longer have the fixed asset on livingston street
so we have to make a credit because this is on the debit side so we have to make a credit to
this building account to make it zero because we don't have it click here choose the building
account and then we make a credit let's make sure it's the right one yes it is make a credit
of a hundred thousand dollars on the next line you'll notice we also have to get
rid of the renovations because we don't have it and if that's a debit of fifteen
thousand we have to make a credit to get rid of that so we choose the renovations account
and we oh we don't you see quickbooks wants to balance things out it doesn't know that
we're not finished yet so we have to come here fifteen thousand okay what's the next thing to
acknowledge oops the next thing to acknowledge is line three the cash well it said a minute ago
that we got a hundred and fifty thousand in cash so since we have more cash in the bank by
a hundred and fifty thousand you may notice cash is in the negative on the credit side
that means when we pay the credit gets more so we have to put the 150 000 on the debit side believe
me when you get cash you put it on the debit side that's all you have to take away from this lesson
okay as far as debits and credits now keep pushing tab to get the difference
okay well quickbooks didn't give us the difference but i happen to know that the difference is thirty
five thousand dollars so the total we paid for the building is the hundred thousand that we bought it
for plus the fifteen thousand that we put into it but we got back more than that we got back fifty
hundred and fifty thousand so that means we have a thirty five thousand dollar gain and the thirty
five thousand dollars belongs on the credit side in order to balance out this transaction and we
know that if it's on the credit side and we know that the money we got was more than what we bought
and renovated it with then we know that this one is the account we recently created gain on sale
of 110 livingston street so now we click save and it's recorded and now when we look at the trial
balance we can see that well if we refresh it we can see that reports trial balance you can see the
building on livingston street is gone you can see the renovations are gone you can see cash is back
on the positive side because we just got cash and you can see there's a new account that showed up
in our trial balance for the first time gain on sale of 110 livingston street and that's also
in the profit and loss if we click the report for profit and loss we have the normal rental income
we have the income from late fees and now this very same company has a gain on the sale of 110
livingston street added to their income in the income section of their profit and loss
now i'm actually going to delete that example in order to show you the second example
so i'm going to double click here go back to the journal entry double click and at the
moment the journal entries in front i'm going to click more and delete now i'm deleting this
so i could show you the second example and what it looks like when you have a loss so let's
imagine instead on july 31 we sold the house for 95 000 well you know that's got to be a loss but
let's take a look at how we would do it we would click the plus sign and we go to journal entry
and of course it remembers july 31st now on the first line you still have to choose
building livingston street you still have to credit it for its balance
because that was the balance of it so no matter what you got paid for it
if you don't have the building anymore you have to get rid of it by making a credit of
whatever the balance is in order to wipe it out same thing with the renovations account
uh 10 livington renovations don't let it balance out the entry too early come over here
you have to make a credit of that amount because both of these two accounts have to become zero if
you have no building and if you don't have the building anymore whether you got paid for it or
not but then the question is how much did you get paid how much should go into cash in bank
and in this time you see quickbooks is trying to balance it out by saying
you put in 115 000 into the to the house 100 that you paid when you bought and 15 for renovation so
if you got paid 115 000 exactly you would not have a gain or a loss the problem is you only got paid
95 000. so what's the difference now quickbooks is being a pain in the neck and not telling us
the difference is a loss and you know in order to balance this out you need twenty thousand on
the debit side you would need twenty thousand more dollars here so because this is a loss this time
we have to choose loss on sale of 110 livingston street oh look at that as soon as we chose the
account quickbooks knows the loss is 20 000 because that's the amount that will balance
out the entry you put in a total of a hundred and fifteen thousand you only got ninety five thousand
left so your loss which automatically shows up on the debit side is twenty thousand when we
click save and close we can go back to the trial balance in the report section and you can see your
cash has increased but not quite as much as it did in the first example but notice livingston
street and the renovations are gone the way they should be and your loss is twenty thousand
so if you look now at the profit and loss unfortunately at the very bottom you will see
all your regular operating income and expenses and then at the end this extraordinary loss
loss on sale of 110 livingston street so even though you made a profit with renting
you lost so much selling that you still have a net loss at the bottom sorry guys