Intermediate Accounting For Dummies

Chapter 18

Accounting for Leases

In This Chapter

Understanding leases

Accounting for the lessee

Classifying items as operating or capital lease transactions

Looking at examples of lessor transactions

Finding out about residual value

Most businesses need tangible fixed assets, such as property, plant, and equipment (PP&E) for their day-to-day operations. Instead of laying out the money to purchase fixed assets, many companies opt to lease equipment. Both the lessee and the lessor have advantages when leasing. For example, a major advantage to leasing fixed assets is that a company can get 100 percent financing, greatly increasing its cash flow (more on this in Chapter 7).

In this chapter, you look at leasing from the point of view of both the lessor (the party that owns the leased asset) and the lessee (the party that’s acquiring the right to use the asset). You need to get familiar with the operating and capitalization methods of recording leases by the lessee. You also walk through ...