Furniture is used all over the world be it your home, school, university, or office. There are just countless applications of furniture in our daily lives and perhaps life would be so difficult and different without the presence of furniture.
There’s a very interesting question about furniture that comes into the minds of everyone but they never find a clear answer to it. Is furniture an asset or liability? If you’re also looking for an answer to this question then keep reading because we are going to explain this whole thing most easily to you.
Let’s move into the article and find out whether if the furniture is an asset or it counts as a liability. First of all, you need to know the difference between an asset and a liability so let’s take a quick look over it.
What is an Asset?
The easiest definition of an asset is that any valuable thing or resource which can be converted into cash is called an asset. It is anything that contains a financial and economical value and can bring some benefit to you in the future.
An asset brings value and money into your pocket. There are several different types of assets like current assets, fixed assets, personal assets, and business assets, etc. Assets can be owned by governments, individuals, businesses, and different organizations.
Some examples include:
- Different kind of machinery
- Cash Money
- Trademark & copyrights
- Bonds, retirement plans, and similar investments.
Now carefully take a look at all these examples and recall the definition of assets that we just dropped above. You can observe that every single thing mentioned in our example is something valuable. All these things are going to bring money and value to your pocket in the future.
For example, let’s suppose you bought 5000 grams of gold for $1000. After 5 years, the price of 5000 grams of gold raises from $1000 to $5000. So now if you will sell it after 5 years, you will make $4000 profit. That’s what an asset is all about.
What is a Liability?
The easiest definition of a liability is that it is the opposite of an asset.
An asset brings money and value to you whereas a liability takes away the money from you and decreases your value.
Generally, there are two main types of liabilities which are known as current liabilities and long-term liabilities.
Let’s take some examples of liabilities to make it easy to understand:
- Payable salaries and wages
- Payable income taxes
- Payable loans
- Payable mortgages
Again, carefully take a look at all these examples and recall the definition of liabilities we have dropped above. You will see that all of our examples will take money away from your pocket and decrease your net value.
For example, let’s suppose your company just made $10,000 profit. But now you have to pay $5,000 of salaries, $2,000 of taxes, and $1,000 of loans with your profit money. Let’s do quick math:
$10,000 – $5,000 – $2,000 – $1,000 = $2,000
Hah, you just saw how liabilities took away all the money from your pocket? Your $10,000 profit is reduced to just $2,000. This way there’s a drastic decrease in the value of your company due to an increasing number of liabilities.
Is Furniture an Asset or Liability
Now we have a complete understanding of assets, liabilities, and the difference between them. Lets’ use our knowledge to determine if furniture counts as an asset or liability.
Well, the answer is that furniture is an asset.
Why Furniture is an Asset?
Recalling the definition above, an asset is anything or resource that can be converted into cash and can bring money and value to you.
Furniture is an asset because you can sell it and convert it into cash which will bring money and value to you. Moreover, furniture also brings value to you as long as you are using it for different purposes and fulfilling your needs.
What Type of Asset is Furniture?
There are several different types of assets but the main two are fixed assets and current assets. So now if you are wondering what type of asset furniture is, let us tell you that furniture is a fixed asset.
What is a Current Asset?
All things that could be converted into cash within 1 fiscal year are termed as current assets. For example, receivable accounts (the money you have to receive from the customers) and the goods or raw material that is available for sale in your inventory.
All these things will bring you money/value/benefit within one fiscal year and that’s why they are called current assets.
Why Furniture is Not a Current Asset?
Furniture does not count as a current asset because it has a much longer useful life than one year. In simple words, furniture is (used & useful) for more than one year and that’s why it is not a current asset.
What is a Fixed Asset?
All those assets that are used by a company in their goods, production, or services and have a life longer than one year are termed as fixed assets. For example:
- The furniture of a company
- The machinery of a company
- The land & building of a company
- The vehicles of a company
All these things are used for a long time by a company in their goods, production, and services. These things have a life longer than one fiscal year that’s why these are called fixed assets.
For instance: the land and building of a company stay there forever, the machinery of a company is used for a very long time, and the vehicles of a company are used for a very long time. So it is proved that all the fixed assets have a life longer than one fiscal year.
Why Furniture is a Fixed Asset?
No company or individual throws away their furniture every time after using it for just one year, right?
Furniture is a fixed asset because it has a life longer than one fiscal year. It is used by a company for its services, goods, and production. Furniture is used by the companies for more than one fiscal year and it is still useful even after one fiscal year. That is why furniture is a fixed asset.
If we sum up our whole discussion in simple words then we can conclude that: Furniture is an asset & it’s a fixed asset.