Just to clear my confusion 🙂
Ok We have 3 types of leases right
1. Operating lease – this is straight forward
Lessee pays Rental Expense
Lessor get Rental Income
…………………………………………………………..
2. Direct financing Lease – Example I want to buy a car and I use my Bank to Finance it.
In my books lessee- If Its a capital lease I record the asset (TT BPO 75 90 rule)
Dr Asset PV
Cr Loan payable to the Bank at PV
Then Every month ( or whatever the payment cycle is)
1. Depreciate the asset over the life of the lease
Dr Dep Expense
Cr Accum Depn
2.
Dr Interest Expense
Dr Loan payable
CR Bank
………………………………………..
If its NOT a capital lease then this is how the bank Lessor
DR Asset to be leased – Cost of Asset = FV
CR Cash paid
DR lease Receivable – PV of the Asset
CR Asset to be leased
Cr Unearned Interest Revenue
In Lesses books when it does not met capital lease criteria
Dr Lease Rental
Dr interest expense
Cr Bank
……………………………………
3. Sales back lease –
This is where in the lesses books we will do this
DR cash
Cr Asset
Cr Deferred Gain
DR lease Asset
Cr Loan payable
Then every month we would
Dr Depn Expense
Dr Acc Depn for Lease asset
Dr Deferred Gain
Cr Depn Expense
Dr Loan Payable for leased asset
Cr Cash.
In my Notes I also have this Sales Lease Types – a way a to sell an asset in installment basis but this time it doesn't have a Bank that is financing it – it seems to be directly between the Manufacturer and the Lessee.
In the books of the lessor
JE
Dr Gross Investment in lease
CR Sales revenue
Cr unearned Interest Revenue
Dr COGS
CR Inventory
When they get payments from the lessee
Dr Cash
Cr Gross Investment
Dr Unearned Interest
Cr Interest Income.
Now I don't know for sure how this is recorded in the Lesses books and I think it is
DR Asset – PV at Implicit Rate
Cr Loan payable
Then every month you will book it this way…
Dr Loan Payable
Dr Interest Expense
Cr Cash
Have I finally got this right ?
.