Which account(s) must be analyzed to determine the proceeds from the sale of a building? How is this cash flow classified?
To determine the proceeds from the sale of a building, you need to analyze the following accounts:
1. Sales or Revenue Account: Look for any entries related to the sale of the building in the sales or revenue account. This account should record the gross amount received from the sale.
2. Sales Discounts Account: If any sales discounts were provided to the buyer, check the sales discounts account for any entries related to the sale. This account should record any discounts given to the buyer, reducing the gross amount received.
3. Cost of Goods Sold (COGS): If the building was held for sale as a part of the normal business operations, there might be an entry in the COGS account. This account should record the cost associated with acquiring or producing the building. However, if the building is not directly related to the business's primary operations, it is unlikely to have an entry in the COGS account.
Once you have determined the total proceeds from the sale of the building, the cash flow from this transaction is classified as an investing activity on the statement of cash flows. This is because the sale of a building is considered a non-operating activity related to the disposal of a long-term asset.