Equipment Leasing/Lease Financing : Accounting of Lease Transaction in the books of Lessor and Lessee

Here are some notes on the accounting of lease transactions in the books of lessor and lessee in detail:

• Lessor:
  • Finance leases: The lessor records a lease receivable equal to the present value of the lease payments. The lessor also records depreciation on the leased asset over the lease term.
  • Operating leases: The lessor records lease revenue equal to the lease payments as they are received.
• Lessee:
  • Finance leases: The lessee records a lease liability equal to the present value of the lease payments. The lessee also records depreciation on the leased asset over the lease term.
  • Operating leases: The lessee records lease expense equal to the lease payments as they are paid.

Here are some of the additional things to keep in mind about the accounting of lease transactions:

• The accounting treatment of lease transactions depends on whether the lease is classified as a finance lease or an operating lease.
• The classification of a lease is determined by the lease agreement and the substance of the transaction.
• The accounting treatment of lease transactions can have a significant impact on the lessee’s and lessor’s financial statements.