Purchase furniture journal entry

Purchase Furniture Journal entry is to record asset purchases.
Depending on the circumstances, furniture purchases can be either inventory or fixed assets for the buyer.
If the Entity is in the business of buying and resale Furniture, then the appropriate classification will be Inventory.
On the contrary, if the Furniture Purchases are for building interior design, they will be part of the non-current asset (Fixed asset).

Accounting requires recording all financial transactions in the books of accounts.
Accordingly, we need to record the Purchase Furniture Journal entry with a debit to the Furniture and credit to the Bank if payment occurs immediately or the Vendor if this is a credit transaction.

Estimated reading time: 7 minutes

Purchase Furniture Journal Entry

Any transaction can be of two different types.

It can be either a Cash or Credit transaction.

So, we will learn how to record furniture purchases under two approaches.

Let’s first see how the Furniture Purchased Journal entries are recorded. Later, we will move on to understand the logic behind them.

1) Cash Transactions

2) Credit Transactions

Every transaction involves recording at least two GL Accounts. Accordingly, this purchase has Furniture A/c and Bank A/c or Vendor Payable A/c. The accounts involved here are Asset (furniture or bank) and Liability account (Vendor).

Per Accounting Rules, debit what comes in and credit what goes out for all Asset GL, debit the Receiver, and credit the Giver for all Liability GL.
So, we will be recording the above journal entries as per the above rules.

Also Read: True Up Journal Entry

How about a tricky example?

Let’s assume Philip is a practicing attorney who wants to renovate his office premises by buying elegant and stylish furniture. He purchased the furniture partly through Cash and exchange of old furniture.

Here are the details:

Cost of Furniture equals $30,000

75% of the payment is in Cash, and the balance is through the exchange of existing furniture. But the book value of the old furniture is $14,000.

The transaction is not straightforward and appears to be an intricate process. So, his accountant is unsure how to record this furniture purchase journal entry and requests professional help from us.

Roll up your sleeves. We got some work here.

Let’s understand the exchange value, which is 25% of the furniture cost = $7,500. However, the book value is $14,000. So, the exchange happened at a loss of $6,500.

We can start with the basic entry, assuming full cash payment.

Now, we will record the entry with part payment in cash and exchange. There will not be any change on the debit side because the value of new furniture doesn’t change with the mode of payment.

Change happens on the credit side. Credit the Bank/Cash for 75% of the furniture cost. 

The credit side balance is recorded by removing the old furniture value from books.

Journal entries don’t stop here.

We need to make sure the business shows an appropriate financial position. The difference between exchange value and book value must also be addressed. Otherwise, it results in financials showing the asset value, which is not an accurate picture.

The following journal entry is to be recorded in the books.

Frequently Asked Questions

Understanding just the journal entry is not sufficient to get comprehensive knowledge.

There will be a lot of varied questions that arise when we need to do the practical application of journal entries. Let’s see a couple of them.

What is the journal entry for the cash purchase of Furniture?

Interpretation of the word Cash Purchase shall not be with its literal meaning of purchases through physical cash.

We use the two terms Bank transaction and Cash transactions interchangeably in business transactions. So, refer to the above first journal entry to record the Cash purchase of Furniture (Debit the furniture and Credit the Cash).

Also Read: Sold Furniture Entry

When Furniture is purchased on credit, the entry will be recorded in?

Purchases without full payment immediately are credit transactions.

We record such transactions by debiting the asset account and crediting the liability account. Refer to the second entry above (Debit the Furniture and Credit the Vendor/Liability).

Read also: Audit of Furniture

Is buying furniture debit or credit?

Buying Furniture will be an asset to any business or for personal use.

Per the accounting rules, we need to debit the assets to increase it. Therefore, buying Furniture will recorded on the debit side of the journal entry.

What is the journal entry for bought office furniture by Cheque?

The Mode of Payment here is a Cheque, and the common practice of recording financial transactions is through Bank GL.

Furniture GL and Bank GL will be debited and credited respectively to record this transaction of buying office furniture by Cheque.

Note: There is a subtle difference between spelling for the same words across the world. Check or Cheque means the same instrument, which is a request to pay the bearer or payee of the sum mentioned in it.

Is furniture debit or credit in the trial balance?

Furniture being an asset (either Current or Non-Current) will have a debit balance. As such, the Furniture will be on the debit side of the trial balance.

Is Furniture and fixtures debit?

Yes, Furniture and Fixtures will be debited as an asset GL.

Is office furniture an expense or an asset?

The answer depends on the quantitative value, usage, and asset capitalization policy of the Entity that purchases. Let’s break it down.

For example, an entity purchases bookshelves to support the well-being of its employees. The monetary value is $5,000, and the value of this Furniture is very immaterial at the entity level. Moreover, the asset capitalization policy defines the requirement for capitalizing the asset purchases exceeding $10,000. Therefore, if the monetary value and capitalization policy hold good for any purchases, we can go ahead and capitalize such Furniture as an asset.

If the scenario is contrary, then it’s appropriate to write down the purchases as an expense even though the benefits arising from it last for more than a year.

Can you capitalize Furniture?

Yes, Furniture can be capitalized if all the criteria mentioned above (Refer to the above FAQ) are satisfied.

Also Read: Cash Coverage Ratio

Journal entry of Furniture purchased for personal use

There is no requirement for individuals to maintain the books of accounts. However, if there are purchases of personal assets then the recording of those journal entries will not be different from the ones which are above.

We hope these above questions and answers help resolve major ambiguity in relation to recording the furniture purchase. If there are any other questions then pls feel free to reach out to us through the Contact Us page.

Summary

Bought office furniture for cash journal entry is to record the Purchases by debiting the Furniture with a corresponding credit to the Bank GL or Liability GL (if it’s a credit transaction). However, the Entity can write off the furniture purchases as expenses owing to the immaterial value. Just like any asset, there will be depreciation on Furniture GL based on its useful life. So, we need to present the net furniture balance or disclose the gross furniture along with the accumulated depreciation in the financial statement (Balance sheet). Hope this article provides a good understanding of recording the furniture purchase.