Financial Accounting For Dummies

Chapter 19

Accounting for Leases

In This Chapter

Laying the groundwork on leases

Learning how the lessee accounts for leased equipment

Making sure the lease is properly classified as operating or capital

Looking at examples of lessor transactions

Most businesses need tangible, fixed assets for their day-to-day operations. Rather than laying out the money to purchase all the necessary fixed assets, many companies opt to lease equipment instead. A major advantage to leasing rather than buying fixed assets is that leasing allows for 100 percent financing, which greatly increases a company’s cash flow (see Chapter 11).

In this chapter, you look at leasing from the point of view of both the lessor (the party owning the leased asset) and the lessee (the party acquiring the right to use the asset). You learn the operating and capitalization methods that a lessee uses to record leases, as well as the journal entries a lessee makes to record a lease under both these methods. You also receive a brief introduction to the classification of leases for the lessor. Specifically, I give you a thumbnail ...