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 calculation. The basic formula, using straight line depreciation, is purchase price less salvage value divided by the total number of years of useful life. This represents the annual depreciation a company can expense each year. The salvage value of furniture may be zero, resulting in the total purchase price being expensed of the useful life of the furniture.
Furniture depreciation is a non-cash expense that slowly lowers the value of a business asset. Companies use depreciation as a representation of the use for each asset in the company. This ensures that companies accurately record expenditures and show the value they receive from each asset in the company. Furniture depreciation is only for long-term assets, which are assets that will last longer than one year. Furniture is not typically a revenue-generating asset; it only provides value for completing ancillary services in the company.
Depreciating furniture is a business expense item. Individuals are not usually allowed by government agencies to depreciate furniture in an attempt to lower their tax liability. Companies will often make large one-time expenditures for office furniture such as lamps, chairs, desks, computers, and other types of furniture used daily in the company’s operations. Companies will typically make large purchases in order to take advantage of discounts or free shipping from furniture manufacturers and sellers.
Companies can use a variety of methods to calculate furniture depreciation. While straight-line depreciation is simple to calculate and quite common, methods such as diminishing balance double declining are alternate methods. The latter two depreciation methods allow companies to receive more benefits from the depreciation expense as the figure is higher early on. This results in lower net income and lower tax liability. Companies can use whichever method is best for their operations and matches the method approved to calculate furniture depreciation for tax purposes.
Companies will typically record office furniture assets in one account, although the figures may need separation if pieces are located at different offices or facilities. For example, office chairs used at the company’s warehouse will be in their own general ledger account separate from office chairs used at the corporate office. Large furniture acquisitions may be also 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 accounting ledger.