Operating Lease

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Posted by geemiz | Posted in Practical Accounting 1, Theory of Accounts | Posted on 12-03-2011

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Lease

A lease is an agreement between two parties, the lessor and the lessee. The lessee is given the right to use a certain property that is owned by the lessor for a specific period of time. In return the lessee will pay an amount to the lessor called rent.

Two Kinds of Lease

Operating Lease

  • This is the most Popular rental approach
  • The periodic rental is recognized as rent expense on the part of the lessee and rent income on the part of the lessor.

Finance Lease

  • This is actually a lease purchase.
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