Question

Why is it incorrect to record the sale of equipment as miscellaneous revenue?

Answer 1

To understant the concept stated in the question we need to look at few definations

Miscellaneous revenue are those revenues that arise from sources which are not from operations of the business or from its investments.

Asset are owned and controlled by an entity whose probable future economic benefits flows to the entity. Assets plays an important role in the operations of a business. A business cannot function without asset. Assets can be further classified into Non Current Assets and Current Assets.

Current Assets are those assets which can be converted into cash within a short period.

Non Current Assets are those assets which the company holds for a period more than 12 months and these assets cannot be readily converted into cash. Equipment is one of the example of such non current asset.

A business entity will use equipment for production of goods and in return the future economic benefits in the form of cash inflows will flow to the entity. The equipments are directly associated with the operations of the entity. However Miscellaneous revenue would include revenue from only those sources which are not from operations of the business or from its investments. Thus sale of equipment will not be recorded as miscellaneous revenue.

Therefore it would be incorrect to record sale of equipment as miscellaneous revenue.