Definition of Discount on Purchase of Office Furniture
The discount on the purchase of office furniture that will be used by a company (as opposed to being resold by a furniture retailer) is recorded in the same asset account in which the office furniture is recorded, such as Furniture and Fixtures or Office Furniture. In other words, the discount is a reduction of the asset’s cost.
[If the discount is received by a retailer who is in the business of buying and selling office furniture, the discount is likely recorded in the general ledger account Purchase Discounts.]
Example of Discount on Purchase of Office Furniture
Assume that a company purchases furniture for the office of a newly appointed executive. The cost of the furniture is $10,000 and the invoice allows an early payment discount of 1% if it is paid within 10 days. If the company pays the invoice within 10 days, the Furniture and Fixtures account will increase by $9,900 ($10,000 minus the discount of $100). The depreciation calculations will be based on the cost of $9,900.
