A city paid $40,000 for police cars with the expectation that they would have a useful life of four years.After three years,the city sold the cars for $3,000.How should the city account for the sale in the General Fund?

Question

Quizplus · Accepted Answer

Under the modified accrual basis of accounting used in governmental funds, the sale of capital assets is not recorded in the same way as it is under full accrual accounting. Instead of recognizing gains or losses on the sale of assets, the proceeds from the sale are typically recorded as "other financing sources." Therefore, when the city sells the police cars, it should debit cash for the amount received ($3,000) and credit "other financing source--sale of capital assets" for the same amount, reflecting the inflow of financial resources from the sale.

A City Paid $40,000 for Police Cars with the Expectation