Reporting and Operations
Furniture & Equipment Assets
(a.k.a. Fixed Assets)
Depending on the size of the organization, most of the furniture and equipment purchased are considered assets and not expenses. Once an asset is recorded, its useful life is determined. A portion of the asset’s cost is then expensed each year over the predetermined useful life using what is called a “contra” account. In the case of furniture and equipment, the contra account is called “accumulated depreciation.”
Over time, the asset account and the corresponding accumulated depreciation account are netted together to determine the “book value” of the assets. The book value is used to determine the gain or loss when the asset is sold or abandoned.
The organization should establish a “capitalization policy.” All items above an amount set by the organization are treated as assets, while items with a cost below the threshold are expensed when purchased. The threshold is not the same for every organization, and it should be based upon the size of the organization. For small organizations a limit of $300 to $500 might be appropriate.
Many organizations also need to maintain these records for filing personal property returns each year.
Periodic reviews of the fixed assets should be made to verify the list matches the actual items owned and used.