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Furniture depreciation is calculated using purchase price, salvage value, and useful life. Straight-line depreciation is common, but double declining balance may be used. Furniture is a long-term asset and not typically income-generating. Businesses record furniture assets in one account, but may separate them by location or time of acquisition.
Furniture depreciation requires three pieces of information to calculate the annual expense associated with this accounting process. Purchase price, salvage value, and useful life factor in other depreciation calculations. The basic formula, which uses straight-line depreciation, is the purchase price less salvage value divided by the total number of years of useful life. This represents the annual depreciation that a business can spend each year. The salvage value of the furniture may be zero, resulting in the full purchase price being charged for the useful life of the furniture.
Furniture depreciation is a non-cash expense that slowly decreases the value of a business asset. Companies use depreciation as a proxy for the use of each asset in the company. This ensures that companies accurately record expenses and show the value they receive from each company asset. Furniture depreciation is only for long-term assets, which are assets that will last more than one year. Furniture is not typically an income generating asset; it only provides value to complete ancillary services in the company.
Depreciating furniture is an item of business expenses. Government agencies generally do not allow people to depreciate furniture in an attempt to reduce their tax liability. Businesses will often make large one-time expenses for office furniture such as lamps, chairs, desks, computers, and other types of furniture used daily in business operations. Typically, businesses will make large purchases to take advantage of discounts or free shipping from furniture manufacturers and sellers.
Businesses can use a variety of methods to calculate furniture depreciation. While straight-line depreciation is easy to calculate and quite common, alternative methods are double declining declining balance. The last two depreciation methods allow companies to receive more benefit from depreciation expense since the figure is higher at the beginning. This translates into lower net income and lower tax liabilities. Businesses may use the method that is best for their operations and matches the approved method for calculating depreciation on furniture for tax purposes.
Companies will generally record office furniture assets in one account, although the figures may need to be separated if the pieces are located in different offices or facilities. For example, office chairs used in the company’s warehouse will be in their own general ledger account, separate from office chairs used in the corporate office. Large furniture acquisitions may also be recorded in separate accounts based on the time of acquisition. This is necessary if the first group is fully depreciated and has zero book value left in the ledger.
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