I was able to find an answer to the question "how does a sale of an asset impact the financial statements, however, I think it is a little complex. Could someone help simplifying this? My answer is:
1) On the income statement, the gain or loss is recorded in the one-time expense or revenue section and then adjusted for the effect of tax. For example, if the asset was on the books for $80 and sold for $100 there is a $20 gain on the asset. Then after subtracting out taxes (assuming a 40% tax rate) net income should be up by $12.
2) On the cash flow statement, net income ($12) flows onto the top of the statement of cash flows. Then you subtract the impact of the gain since it is a non-cash benefit (-$20). Then you need to add back the entire sale of the asset (+$100). The net change in cash is $92.
3) Finally, on the balance sheet - cash is up $92. The PP&E that was sold needs to be written off the books (-$80). Overall, the assets side of the balance sheet is up $12. The liabilities and equity side of the balance sheet is up by $12 as net income flows into the retained earnings on the equity side of the balance sheet.
This looks simplified enough. Good job.
Man I hated accounting.
Not sure you can get more simplified than what you wrote.
You could eliminate the first sentence of #1 and hop right into your example. And for #3 simply say cash is up $92, PP&E goes to zero for a net change of $12 on the assets side with RE up $12 from net income for everything to balance.
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