Furniture and equipment are typically classified as fixed assets or property, plant, and equipment (PP&E) in accounting. These are long-term tangible assets that a business uses in its operations to generate income. They are not intended for sale but are essential for the day-to-day functioning of the business.

Key Characteristics of Furniture and Equipment:

1. Tangible Assets: Furniture and equipment are physical items that can be seen and touched.
2. Long-Term Use: They are expected to provide benefits to the business for more than one year.
3. Depreciation: Since these assets have a useful life, their cost is allocated over their useful life through depreciation. This means that a portion of their cost is expensed each year rather than being fully expensed at the time of purchase.
4. Capital Expenditure: The purchase of furniture and equipment is considered a capital expenditure, meaning it is recorded as an asset on the balance sheet rather than as an expense on the income statement.

Accounting Treatment:

• Initial Recognition: When furniture and equipment are purchased, they are recorded at their cost, which includes the purchase price, import duties, transportation costs, and any other costs directly attributable to bringing the asset to its working condition.
• Subsequent Measurement: After initial recognition, furniture and equipment are carried at their cost less accumulated depreciation and any accumulated impairment losses.
• Depreciation: Depreciation is calculated using a method that reflects the pattern in which the asset's economic benefits are consumed. Common methods include straight-line depreciation, declining balance depreciation, and units of production depreciation.
• Disposal: When furniture and equipment are sold or disposed of, the asset and its accumulated depreciation are removed from the books, and any gain or loss on disposal is recognized in the income statement.

Examples of Furniture and Equipment:

• Furniture: Desks, chairs, tables, filing cabinets, and shelving.
• Equipment: Computers, printers, machinery, tools, and vehicles used in the business.

Financial Statement Presentation:

• Balance Sheet: Furniture and equipment are presented under the "Property, Plant, and Equipment" section of the balance sheet.
• Income Statement: Depreciation expense related to furniture and equipment is included in the income statement, reducing the net income.

Importance in Financial Analysis:

• Asset Utilization: Analysts often look at how efficiently a company is using its fixed assets, including furniture and equipment, to generate revenue.
• Capital Expenditures: The level of investment in furniture and equipment can indicate a company's growth strategy and its commitment to maintaining or expanding its operational capacity.
• Depreciation Policies: The choice of depreciation method and useful life estimates can impact a company's financial statements and key metrics such as net income and asset turnover.

In summary, furniture and equipment are critical components of a company's fixed assets, playing a vital role in its operations and financial reporting. Proper accounting and management of these assets are essential for accurate financial statements and effective business operations.