Bookkeeping depreciation recapture & P/L

[AZ-Tax]

Sold 100% bus use vehicle for $5000 paid $30000 when placed in service. Prior and current depreciation is $20000. The business still lost $5000 on the vehicle. This comes up as a 4797 loss which bypasses form 1120s and flows to the K1. The bookkeeper reported the sales price of $5000 as income on the P&L (cash basis). Since the vehicle was not fully depreciated out and was sold later in 2009, there was some pro rated depreciation left on the vehicle. The bookkeeper entered that as an expense. Does all of this sound correct?

[sea-tax]

AZ

Not the foremost expert on accounting issues. But I think that is incorrect. The $5000 should not be entered onto the P&L as an income item or any items for that matter.
Based on your figures the client had an adjusted basis of $10k and sold the asset for $5k sounds like a loss to me of $5k.

Personally on the P&l'S that my bookkeepers put together we do not account for disposed of assets at all. We simply make the adjustments on the tax return to reflect the 4797 loss or gain. At year end I ask the client did you dispose of any assets yes or no. If yes then what and how much and go form there.

[Uncle Sam]

>>Personally on the P&l'S that my bookkeepers put together we do not account for disposed of assets at all.<<

That's dangerous.

What you're doing is keeping a disposed asset on the books when it shouldn't be there and shows you have poor knowledge of accounting.

[sea-tax]

>>Personally on the P&l'S that my bookkeepers put together we do not account for disposed of assets at all.<<

That's dangerous.

What you're doing is keeping a disposed asset on the books when it shouldn't be there and shows you have poor knowledge of accounting.

US
No It shows that I did not explain myself well enough. Our bookkeeping systems have been in place for 30years and have worked wonderfully. All necessary adjustments between book and tax have always been met and tax returns have been prepared correctly, have many no change audits to back this up. Of course my statements are for management purposes only and I do not do audited financials. Really what I have is more in line with a cash flow statement which is what 95% of small businesses really care about and are willing to pay you for.
How much money did I make this month and how much did I spend and on what?
I think that about covers most of what one needs to complete a tax return, is it GAAP accounting most definately not, but who says it has to be. So long as the tax return is prepared correctly the IRS could give two hoots. It may not be your way but it works for me.

[AZ-Tax]

Update

Now I come to find out the 100% use business vehicle was repossessed and with the S-Corp owing $5000 on the vehicle. How is that entered into the S-Corps books? Is it still considered disposed of? The S-Corp did not pay off the $5000 in 2009.

[JohnH]

For accounting purposes, a repossession is handled exactly like a sale, isn't it? Depending upon whether the debt is canceled, there may be a few extra JE's. But if it's a straight repossession with the debt canceled, then the selling price is the outstanding loan balance.