What must be done with the proceeds from the sale of capital assets when preparing the statement of net position?

When preparing the statement of net position, the proceeds from the sale of capital assets directly impact how these assets are reported on the financial statements. Specifically, when a capital asset is sold, the total capital assets reported on the statement must be reduced by the amount of that asset's original cost or net book value. This reflects the fact that the entity no longer owns the asset and thus should not carry its full value on the financial statements.

Reducing the total capital assets ensures that the statement of net position accurately reflects the current resources available to the government entity. The proceeds from the sale are typically recorded in a different section, often as revenue within the operating statements, and may be used for reinvestment or other purposes, but they do not result in an increase in the capital assets category on the statement of net position. This action maintains integrity in the financial reporting process by showing a true representation of the assets owned by the governmental entity at any given time.