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  • Fin Lease Vs Op Lease Explained

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    flopboyz10
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    The document compares the accounting treatment for finance leases and operating leases. For finance leases, the lessee recognizes a right-of-use asset and lease liability on the balance sheet. Each period, interest expense is recorded on the liability and an amortization expense reduces the right-of-use asset. For operating leases, the lessee records lease expense each period with no assets or liabilities recognized. Rent payments are split between a reduction of the right-of-use asset and interest expense on the liability.

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    Fin lease vs op lease explained

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    The document compares the accounting treatment for finance leases and operating leases. For finance leases, the lessee recognizes a right-of-use asset and lease liability on the balance sheet. Each period, interest expense is recorded on the liability and an amortization expense reduces the right-of-use asset. For operating leases, the lessee records lease expense each period with no assets or liabilities recognized. Rent payments are split between a reduction of the right-of-use asset and interest expense on the liability.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    5 views4 pages

    Fin Lease Vs Op Lease Explained

    Uploaded by

    flopboyz10
    The document compares the accounting treatment for finance leases and operating leases. For finance leases, the lessee recognizes a right-of-use asset and lease liability on the balance sheet. Each period, interest expense is recorded on the liability and an amortization expense reduces the right-of-use asset. For operating leases, the lessee records lease expense each period with no assets or liabilities recognized. Rent payments are split between a reduction of the right-of-use asset and interest expense on the liability.

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    © All Rights Reserved
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    of 4

    Finance Lease Books of the Lessee Operating Lease

    Year Rent Year

    1 $ 57,619 $ 52,381 1
    2 $ 57,619 $ 47,619 2
    $ 100,000
    Rate implicit $ -100,000 Rate implicit $ -100,000
    $ 57,619 $ 57,619
    $ 57,619 $ 57,619
    10% 10%

    Debit ROU asset $ 100,000 Debit


    Credit Lease Liabilty $ 100,000 Credit

    Lease amortization table - Finance Lease


    10%

    Payment Balance
    Year Lease payment Interest of lease liabilty of lease liabilty
    - $ 100,000
    1 $ 57,619 $ 10,000 $ 47,619 $ 52,381
    2 $ 57,619 $ 5,238 $ 52,381 $ 0
    $ 100,000

    Year1 Year1

    Debit Lease Liabilty $ 47,619 Debit


    Debit Interest expense $ 10,000 Credit
    Credit cash $ 57,619 Credit

    Debit Amort expenses $ 50,000 Debit


    Credit ROU asset $ 50,000 Credit

    Year2 Year2

    Debit Lease Liabilty $ 52,381 Debit


    Debit Interest expense $ 5,238 Credit
    Credit Cash $ 57,619 Credit

    Debit Amort expenses $ 50,000 Debit


    Credit ROU asset $ 50,000 Credit
    Operating Lease
    Rent

    $ 57,619 $ 52,381
    $ 57,619 $ 47,619
    $ 100,000

    ROU asset $ 100,000


    Lease Liabilty $ 100,000

    Lease amortization table - Operating Lease


    10%

    Amortization Balance
    Year Lease payment Interest of ROU asset of ROU asset
    - $ 100,000
    1 $ 57,619 $ 10,000 $ 47,619 $ 52,381
    2 $ 57,619 $ 5,238 $ 52,381 $ 0
    $ 100,000

    Lease Liability account


    Lease expense $ 57,619 Cash $ 57,619 ROU
    ROU asset $ 47,619 Lease exp
    Lease Liability $ 10,000
    Cash $ 57,619 Lease exp
    Lease Liability $ 57,619
    Cash $ 57,619

    $ 115,238

    Lease expense $ 57,619


    ROU asset $ 52,381
    Lease Liability $ 5,238

    Lease Liability $ 57,619


    Cash $ 57,619
    Gliem Example - Operating lease
    15%
    Amortization Balance
    Year Lease payment Interest of ROU asset of ROU asset
    0 $ 267,774
    1 $ 100,000.00 $ 40,166.10 $ 59,833.90 $ 207,940.10
    2 $ 100,000.00 $ 31,191.02 $ 68,808.99 $ 139,131.12
    3 $ 160,000.00 $ 20,869.67 $ 139,130.33 $ 0.78
    $ 92,226.78 $ 267,773.22

    Debit ROU Asset $ 267,773.22


    Credit Lease Liability $ 267,773.22

    Year 01

    Debit Lease Expense $ 100,000.00


    Credit ROU asset $ 59,833.90
    Credit Lease liability $ 40,166.10

    Debit Lease Liabilty $ 100,000.00


    Credit Cash $ 100,000.00

    Year 02

    Debit Lease Expense $ 100,000.00


    ccount Credit ROU asset $ 68,808.99
    $ 100,000 Credit Lease liability $ 31,191.02
    $ 10,000
    Debit Lease Liabilty $ 100,000.00
    $ 5,238 Credit Cash $ 100,000.00

    Year 03

    $ 115,238 Debit Lease Expense $ 160,000.00


    Credit ROU asset $ 139,130.33
    Credit Lease liability $ 20,869.67

    Debit Lease Liabilty $ 160,000.00


    Credit Cash $ 160,000.00
    Lease Liability A/C
    Cash $ 100,000.00 ROU $ 267,773.22
    Cash $ 100,000.00 Lease Exp $ 92,226.78
    Cash $ 160,000.00

    $ 360,000.00 $ 360,000.00

    ROU Asset A/C


    Lease liability $ 267,773.22 Lease Exp $ 267,773.22

    $ 267,773.22 $ 267,773.22

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