Why are we adding loss on the sale of machinery with net profit in a?
You can use two methods for accounting. Accrual accounting and cash accounting. Cash accounting is basically cash in and cash out. You track the money. Without taking anything else into account. This type of accounting is use mostly because it is very simple to use, anyone who can do addition and substraction can do it. Accrual accounting isn't about cash flow. This type of accounting follow strict principles. It doesn't take cash in and cash out into account, instead of writing a transaction when the money move. For example, a sales would be considered when the contract take effect, even if the money will come in a month later. With this type of accounting, you can have a loss with a positive cash flow or a gain with negative cash flow. This is more precise than cash accounting. Some company can even make money while accoutning a loss. This is very advantageous to optimize taxes at the end of the year. For taxe purpose, we need to have a strict accrual accounting. Those who uses cash accounting need to make an accountant convert there cash accounting into a accrual accounting at the end of the year.