Journal Entry for Purchase Furniture with Cash

Purchase furniture with cash is the process the company uses the cash to acquire the furniture from the supplier.

The company records furniture when they purchase them for internal use. The company expects to use them to support the business operation. Company records furniture as fixed assets as it is purchased for use, not for resell. The company expects to use it for more than a year.

The same furniture may be recorded as the inventory if the company purchases the items for reselling to the customer for profit. The initial purchase will be recorded as the inventory which is the current assets on the balance sheet. After the items are sold to the customer, the company has to record them as the cost of goods sold which is on the income statement.

When the company purchase furniture, they can require credit from the supplier which is a common business practice. It is very normal for the supplier to provide credit to the customers. It can be negotiated based on the term between both parties.

In some circumstances, company can use cash to purchase furniture. There is nothing wrong with using cash for such a purchase. The company has enough cash flow to support such kind of transaction. They are not bothered with the credit purchase.

The company will record the furniture which is the fixed assets on the balance sheet. At the same time, it will reduce the company’s cash as well. If they use the cash at bank, it will reduce the bank balance. If they use the cash on hand, it will reduce the cash account.

Journal Entry for Purchase Furniture by Using Cash

The company has to recognize the fixed assets when they are ready to use with expected future economic inflow. If the company purchases the fixed assets, it will not be different from the delivery date. The furniture is most likely to be ready to use when the supplier delivers it to the customer’s location.

The journal entry is debiting fixed assets – furniture and credit cash account.

The transaction will increase the fixed balance on the balance sheet. It also reduces the cash balance that needs to be paid to the supplier as well.

Example

Company ABC is a digital marketing agency. During the month, company purchased a set of furniture cost $ 10,000 from the supplier. It was delivered within the month. And ABC uses the cash on hand to pay for the purchase. Please prepare a journal entry for purchasing furniture by using cash.

The company has used the cash to pay for the purchase of furniture. The fixed assets arrive during the month and company also makes payments to the supplier.

The journal entry is debiting fixed assets – furniture $ 10,000 and credit cash on hand $ 10,000.