Financial Glossary
Disposition (in Accounting)
In accounting, a disposition is the act of selling, exchanging, retiring, or otherwise removing an asset from a business. When an asset is disposed of, its original cost and accumulated depreciation are removed from the books, and any difference between the proceeds received and the asset's remaining book value is recorded as a gain or loss. Dispositions apply to equipment, vehicles, real property, investments, and other long-lived assets.
Problem & Application
Real estate investors and campground or RV-park owners encounter dispositions whenever they sell a property or scrap aging equipment, and how the transaction is recorded affects both the financial statements and the tax return. Failing to remove an asset's cost and accumulated depreciation, or miscalculating the gain or loss, leaves the balance sheet overstated and can trigger errors in depreciation recapture. Proper disposition accounting ensures fixed-asset records stay accurate and the resulting tax consequences are reported correctly.
In Short
Recording a disposition correctly clears the asset from the books and pins down the gain or loss for tax purposes. It is a routine but easy-to-mishandle entry that keeps fixed-asset accounting honest.