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Financial Accounting. A lease is an agreement between two parties, a lessor and a lessee. In this agreement, the lessor gives the lessee the right to use an asset in exchange for payments. Usually, it consists of leasing property, machinery, vehicles, or other fixed assets.

Accounting for an Operating LeaseClick on the Create icon 2a01.In the Other column, choose Journal Entry.Add the relevant asset account for Operating Lease- Right-of-Use asset. Debit the present value of your lease payments.Choose the applicable liability account and input the present value of your lease payments.Jan 7, 2020

Accounting for a Lease with a Bargain Purchase Option If a lease has a bargain purchase option, the lessee must record the asset as a capital lease in an amount equal to the present value of all minimum lease payments over the lease term.

Lease Classifications for a Lessee A lessee should classify a lease as a finance lease when any of the following criteria are met: Ownership of the underlying asset is shifted to the lessee by the end of the lease term. The lessee has a purchase option to buy the leased asset, and is reasonably certain to use it.

The lessor reports the lease as a leased asset on the balance sheet and individual lease payments as income on the income and cash flow statements. The lessee reports the lease as both an asset and a liability on the balance sheet due to their stake as a potential owner of the asset and their required payment.

The lessee's balance sheet must show a right-of-use asset and a lease liability initially recorded at the present value of the lease payments (plus other payments, including variable lease payments and amounts probable of being owed by the lessee under residual value guarantees).

The asset column should have an entry titled, "Auto Lease" (if an auto was the leased item) or "Lease Purchase." Credit the liability column, next, on the balance sheet for the lease purchase price, minus any down payment, trade-in amount received and interest computation.