How is the accounting for lease transactions done?
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Answer / Satyanarayan Singh
Lease transactions are classified as either operating leases or finance leases. The accounting treatment varies between the two:
1. Operating Leases: These are considered rentals, and the lessee records an asset (the right to use the leased property) and a liability (the future lease payments).
2. Finance Leases: These are treated similarly to purchases, with the lessee recording an asset (the leased property), a liability (the present value of future lease payments), and an expense for each period's depreciation and interest.nThe lessee should also recognize an obligation to make any residual payments at the end of the lease term.
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