Lessors and Sales-Type Capital Leases

Premium

When a lessor enters a sales-type capital lease, several journal entries will be made to account for the transaction:

  • An investment in lease asset is created on the balance sheet (NOTE: this value is greater than the reduction to inventory, so the lessorā€™s assets on the balance sheet have grown as a result of the transaction).
  • A cost of goods sold expense is calculated and recognized (NOTE: COGS is netted against sales revenue to determine gross profit or loss on the ā€œsaleā€).
  • Sales revenue is recognized.
  • The inventory asset account on the balance sheet is reduced.

Unlock Premium Content

Upgrade your account to access the full article, downloads, and exercises.

You'll get access to:

  • Access complete tutorials and examples
  • Download source code and resources
  • Follow along with practical exercises
  • Get in-depth explanations