In the governmental activities journal, which entry would NOT be included when disposing of equipment?

• A. A debit to Cash for $15,000.
• B. A credit to Other Financing Sources for $5,000.
• C. A debit to Accumulated Depreciation for $30,000.
• D. A credit to Equipment for $40,000.

Answer: (B)

In government-wide (governmental activities) accounting, disposing of equipment is recorded by removing the asset’s cost and its accumulated depreciation, and by recognizing any cash received along with a gain or loss on the disposal in net position. The category “Other Financing Sources” is used in governmental funds to reflect non-operating inflows affecting current financial resources, not in the government-wide statements. Therefore crediting Other Financing Sources for the disposal proceeds would not appear in the governmental activities journal.

The other entries described fit the disposal process. You would debit Cash if cash is received, debit Accumulated Depreciation to remove the depreciation accumulated on the asset, and credit Equipment to remove the asset’s cost. The remaining difference between cash received and the asset’s book value would be recorded as a gain (credit) or loss (debit) on disposal in the net position. In this example, with a cash inflow of 15,000, cost 40,000, and accumulated depreciation 30,000, the journal would show the cash and depreciation debited, the equipment credited, and a gain recognized rather than posting to Other Financing Sources.