Furniture and fixtures is a long-term asset account that records the cost of the furniture and fittings a business uses in its operations. Typical items include desks, chairs, filing cabinets, conference tables, bookcases, shelving, display cases and counters. These items last more than a year and are not held for resale, so they are classified as fixed assets within property, plant and equipment and depreciated over their useful lives.
The account is often abbreviated F&F, and some businesses combine it with equipment as "furniture, fixtures and equipment". In this context fixtures means fittings that can be removed without serious damage to the building, such as freestanding shelving or display units. Permanent improvements to a building, such as built-in walls, are recorded as part of the building or, for a tenant, as leasehold improvements.
Furniture and fixtures in plain terms
When a new café opens, it buys tables, chairs, a counter and shelves for the coffee beans. These will be used every day for years, so it would be misleading to count their whole cost as an expense in the café's first month.
Instead, the café records them as things it owns and spreads their cost over the years it expects to use them. A cheap item, like a $20 stool, might simply be counted as a cost straight away, because tracking it for years would not be worth the effort.
What is included in cost
Under the cost principle, furniture and fixtures are recorded at their purchase price plus the costs needed to get them ready for use, such as sales tax, delivery and assembly. Items below the company's capitalization threshold are usually expensed immediately, as a practical application of materiality. Purchases of many low-cost items at once, such as furnishing an entire office, may be capitalized as a group.
For example, a law firm buys desks, chairs and bookcases for a new office for $22,000, plus $1,400 of sales tax and $600 of delivery and assembly. It debits Furniture and Fixtures $24,000 and credits Cash or Accounts Payable.
Depreciation
Furniture and fixtures are depreciated over their estimated useful life, often five to ten years for book purposes. If the law firm expects its furniture to last seven years with a salvage value of $3,000, straight-line depreciation is $21,000 divided by seven, or $3,000 a year. Each year it debits Depreciation Expense and credits Accumulated Depreciation: Furniture and Fixtures. After three years the carrying value is $15,000.
For US federal income tax, office furniture and fixtures are generally seven-year property under the modified accelerated cost recovery system, and qualifying items may be eligible for immediate expensing under Section 179 or bonus depreciation. As with other assets, tax and book depreciation often differ.
- Office equipment covers machines such as copiers, printers and telephones rather than furniture, and usually has a shorter life.
- Equipment more broadly covers machinery and tools used in production or operations.
- Leasehold improvements are changes to a leased space, such as fitted partitions or built-in cabinets, depreciated over the shorter of their useful life and the remaining lease term.
- Furniture held for sale by a furniture retailer is inventory, not a fixed asset.
Disposal and records
When furniture is sold, donated or thrown away, depreciation is brought up to date and the asset's cost and accumulated depreciation are removed. Any proceeds above or below the carrying value create a gain or loss, as with any disposal of fixed assets. Because furniture is often moved between offices or replaced piecemeal, businesses with large amounts of it tag items and keep a fixed-asset register, checking it periodically against what is actually on the premises so that items no longer in use are written off rather than left on the books.
Insurance is another reason to keep good records. Property policies usually cover furniture and fixtures at replacement cost, which may be far above the depreciated carrying value in the accounts. After a fire or flood, a business with an up-to-date register can show what it owned and support its claim; one without such a list often struggles to prove its loss. Some businesses also review the register when planning a move or refurbishment, to decide which items to keep, sell or donate.