Difference between revisions of "Account for a Capital Lease"
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A lease agreement refers to the act of one company lending an asset to another company, in exchange for periodic rent payments (like renting an apartment, for example). Capital leases are one form of lease, where the lease is basically structured as a purchase and financing agreement. Capital leases are commonly employed when businesses loan large pieces of equipment or other capital-intensive assets to each other. To account for a capital lease, familiarize yourself with the terms of the arrangement and make the appropriate journal entries. Keep in mind that new rules issued by the Financial Accounting Standards Board (FASB) will go into effect in 2018 for public companies and in 2019 for all other organizations.<ref name="rf1">http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176167901010&acceptedDisclaimer=true</ref> | A lease agreement refers to the act of one company lending an asset to another company, in exchange for periodic rent payments (like renting an apartment, for example). Capital leases are one form of lease, where the lease is basically structured as a purchase and financing agreement. Capital leases are commonly employed when businesses loan large pieces of equipment or other capital-intensive assets to each other. To account for a capital lease, familiarize yourself with the terms of the arrangement and make the appropriate journal entries. Keep in mind that new rules issued by the Financial Accounting Standards Board (FASB) will go into effect in 2018 for public companies and in 2019 for all other organizations.<ref name="rf1">http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176167901010&acceptedDisclaimer=true</ref> | ||
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== Steps == | == Steps == | ||
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#*To account for this, you must charge that amount to the income statement as an expense each year. The basic procedure is to debit the depreciation expense account by $12,000, and then credit the accumulated depreciation account for $12,000. | #*To account for this, you must charge that amount to the income statement as an expense each year. The basic procedure is to debit the depreciation expense account by $12,000, and then credit the accumulated depreciation account for $12,000. | ||
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== Tips == | == Tips == | ||
