and now we will learn the last part about big houses part three selling the property
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 of 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 and other income
give me other expense type of account so very simple in the chart of accounts list chart of
accounts again in the bottom left account new this one is other income not income not income
other income because it will go in a different place and it belongs in a different place in your
profit and loss report click continue and we'll type in the words gain on sale of property then
we'll click Save and new and we'll choose other expense type of account and we'll put loss on sale
of property and we'll put Save and close now we have the two accounts we need just in case we have
either a gain or a loss for example let's imagine on October 31 we sold the house for a hundred and
fifty thousand dollars well what do we do if you look at the trial balance we can see the amount we
have here as debit for the building is a hundred thousand so in the journal entry we have to make a
credit to wipe that out a credit for a hundred thousand to this account same thing with the
renovations and has a debit balance but if we no longer have the building we should not have this
account in our chart of accounts so because it's on the debit side we have to make a credit to wipe
it out now notice cash and bank now has a negative balance and again you could study about debits and
credits in the Supplemental videos but if cash is credit it means it's negative that means when we
get the hundred and fifty thousand it will go on the debit side and of course it will decrease this
neg it will not be a full hundred fifty thousand because we already have a little bit of a negative
balance and the difference will be either a gain or a loss so from the main menu click company make
journal entry click OK and of course we have to put the date October 31st of 2020 now again this
building has a debit balance so we have to make a credit of a hundred thousand for the building
for that particular account building on Livingston Street then when we click the next line QuickBooks
is trying to balance the entry for us it doesn't know that we're not finished after two accounts
so let's wipe out what QuickBooks ingests go ahead and find the renovation account renovations 110th
Livingston Street and that was a debit balance of fifteen thousand so to wipe it out because we sold
the house we have to make a credit pushing tab now the cash we got goes into cash and bank but
it's not a hundred and fifty thousand remember QuickBooks is just trying to balance the entry
change it to the actual amount of cash that we got pushed AB now if we keep pushing tab
QuickBooks again is trying to balance the entry and it's showing us oops cubing it's showing us
that the difference between all that we paid for the house and the amount we got paid for
the house that difference is $35,000 and because the amount we got paid was more than what we paid
for the house plus what we renovated we now have to choose this account gain on sale of property
so did we account for all four of these items in the journal entry yes we did compare each of the
things that were necessary to what we actually put now when we click Save and close and click
OK aha you can see the building is gone it's down to 0 the renovations are gone it's down to
0 cash went from a two or three thousand dollar negative balance to a hundred and forty $7,000
positive balance because we received a hundred and fifty thousand and of course at the bottom
here you see gain of the sale of property now I need to show you what the normal profit and loss
would look like with this game from the main menu click reports company and financial profit & Loss
standard and push a for all notice the profit and loss has a normal income section see his
income section income from lay fees rental income earned and the total income then it
has an expense section for all of the different expenses that we pay during the course and then
it has ordinary income so we made normal rental income minus expenses this amount 56 675 however
in an additional section for something that we don't normally do on a regular basis we had
another income that's listed here at the bottom gain on sale of property and now this net income
is the real amount of net income that should be considered when filing for your taxes now to get
the whole picture you should try a second example let's imagine that we instead sold the house for
ninety five thousand well let's just delete what we entered if we click the journal and scroll
to the bottom we get the most recently entered transactions we can double click this then click
Edit transaction in order to bring it back in front of you then you can delete it click delete
and click ok now we'll re-enter it fresh let's imagine that we sold the house so again building
on Livingston Street we have to make a credit for a hundred thousand the renovations account same
thing it has a debit balance of fifteen thousand so we have to make a credit of that same amount
to wipe it out but now this time the cash and bank that we got was only ninety five thousand so when
QuickBooks balance is the entry aha QuickBooks says we need a debit this time to balance the
entry we need a debit this time because the amount of cash on the debit side that we received is not
as much as the total that we paid for the house and the renovations so if the cash we got is not
the same as it's not more than the total of the what we paid for the house the renovations then
that difference logically is a loss and he lost on the sale of property and this is what it would
look like if you got less than what you paid for the house plus what you paid to renovate
you would have this loss when we click Save and close and click OK we can notice that the profit
and loss now shows a loss on sale of property for 20,000 and it lowered our ordinary income