After initial recognition you end up having an asset and a liability on your balance sheet. Now when it comes to subsequent measurement and entries, there are a couple of things relevant to it. <\/p>\n
First off is the depreciation. The asset is depreciated the same way as every other asset in the group it was recognized in. Also the useful lives are determined the same as to every other similar asset the company is holding. As a general rule though the useful life should never be longer than the rental period.<\/p>\n
The entry every month:<\/p>\n
Dr Depreciation expense<\/p>\n
Cr Accumulated depreciation<\/p>\n
The lease liability is treated as every other long-term liability essentially. Short-term part of it is the amount due in next 12 months and everything else is long-term.
\n
\nThe entry is following:<\/p>\n
Dr Short-term liability<\/p>\n
Cr Cash or cash equivalent<\/p>\n
Now in addition to the lease liability there is interest expense that also needs to be recognized. When the lease liability doesn\u2019t affect your income statement, the interest expense does. Essentially since the payment to the lessor is always in the same amount, the interest expense is ever changing since the principal is changing (decreasing every month due to regular payments covered above). So as a result, it is not included into the finance lease liability, but accrued monthly and separately. <\/p>\n
Entries are as follows:<\/p>\n
Dr Interest expense from finance leases<\/p>\n
Cr Accrued interest liabilities<\/p>\n
On your statement of cash flows the depreciation is obviously an adjustment under operating activities, whereas the lease payments are classified under financing activities. The interest expense is again usually operating activities cash flow. <\/p>\n
So there you go, some easy to use entries and guidance when it comes to finance lease subsequent measurement.<\/p>\n","protected":false},"excerpt":{"rendered":"
After initial recognition you end up having an asset and a liability on your balance sheet. Now when it comes to subsequent measurement and entries, there are a couple of things relevant to it. First off is the depreciation. The asset is depreciated the same way as every other asset in the group it was […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,36],"tags":[],"class_list":["post-2237","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-8-finance-leases"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2237","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=2237"}],"version-history":[{"count":2,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2237\/revisions"}],"predecessor-version":[{"id":2460,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2237\/revisions\/2460"}],"wp:attachment":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=2237"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=2237"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=2237"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}