How to Account for an Operating Lease: Lessee and Lessor.

[@abhayrajput3510]

Great lecture , improved my foundation for advance queetions.

[@AccountingLectures]

Glad to hear that! Thank you and please visit the website for more farhatlectures.com/ Start your free trial!

[@omarfaruk6149]

Sir I might be wrong. I am having some trouble in grasping the idea. My problem is that if in 2021, we expense ROA by 15,620.08, and in 2022 we expense ROA by 16,622.66, then in the year 2023, we have to expense ROA by 17,620.08 to struck the ROA from the balance sheet. Sir, if you take some time to clarify this quandary, it will be a great help for me.

[@Sicsaem]

Thank you for explaining it this way! Most demonstrations show another table that needs to be made, and I think it just makes sense to plug in the missing value. Leases are a lot of work, gotta make it easier where you can.

[@AccountingLectures]

Most welcome. Please check my website for more. Start your free trial : farhatlectures.com/

[@willvaughn6.395]

there is not ROU in an operating lease...... there is no exchange of ASSET entire presentation is inaccurate

[@trentonhogsett0311]

You should do a video with this same thing but with different payment for each year and I guess you have to calculate the of PV of each payment for each year, our professor didn’t teach us how to do it but of course he’s giving us an assignment on it

[@dharanipatel7010]

Hi Farhat .. This one is really helpful .. Thanks so much .. Can you pls explain how to account for tenant’s improvement allowance given by lessor and unused amount set off against payable rent in lessee’s books..

[@AccountingLectures]

Thank you and please visit the website for more farhatlectures.com/

[@MrGaryStaples]

@11:48 your journal entry doesn't balance

[@konaboyz1690]

simple - just past the exam then put up with Blah Blah Blah for the next 30 years from your clients! Surfing CPA Hawaii-California

[@weiwu1929]

The operating lease JE does not make sense to me. (the 2nd JE doesn't balance either due to the wrong amount of credited cash.) Would you please double-check? Based on Becker's teaching about operating lease, lessee's JE would be : Dr Lease expense $17620.08 Dr Lease liability 15681.75 Cr Cash $17620.08 Cr ROU asset amortization 15681.75 And you can see that Becker's way has a complete different result from yours because the lease expense equal to cash payment, which is different from yours. So, I'd assume either yours or Becker's is not doing it correct??

[@bryanpaniagua9632]

I'm using Roger CPA and the approach is the same for lesee operating expense. There is only one expense and the credit to ROU asset is a plug and will be different every year. Your lease liability and expense need to be the same(on this problem) you're not accounting for the interest. Dr Lease expense $17,620 Cr Interest $1,938.33 Cr Rou Asset $15,681.75 Dr Lease Liability $17,620 Cr Cash $17,620

[@bryanpaniagua9632]

I had a friend show me his Becker notes, looks like this problem has more than one approach. Becker excludes the interest and Roger and other reviews include it.

[@cuyasoc6939]

Why is he accounting for the cash and lease liability again if the payment was already done on 1/1?

[@isaacmartinez-bs8se]

Was a bit confused on this as well. From how I understand it it’s because in the Becker example the lease payment is made at the end of the period (Dec 31), while in this example the payment is made at the beginning of the period (Jan 1). Following Becker’s approach. Lessee’s JE at Dec 31 would involve a credit to an accrued liability (lease liability) instead of cash, since we must accrue a liability for the expense that hasn’t yet been paid: Dr Lease Expense 17,620 Cr Lease Liability (accrued liab)17,620 Dr Lease Liability 15,682 Cr ROU accum amortization 15,682 JE @ 1/1 (cash paid and reverse accrued liability): Dr Lease Liability 17,620 Cr Cash 17,620 Thus, the lease liability carrying value at 1/1: is: 32,305 + 17,620 (accrued liability) - 15,682 - 17,620 (reversal of accrued liability) = $16,263

[@Dakid015]

thank you for this lecture prof! how come you don't accrue the 15,681.75 to credit lease liability at 12/31/x1? by just debiting this amt for the cash payment aren't you understating lease liability?

[@aaroacademy]

Excelent presentation, very clear and straight to the point.

[@antonmursid3505]

Antonmursid🇮🇩🇮🇩🇮🇩🙏🙏🙏✌✌👌🙏🙌💝

[@MuhammadUmar-ot2tk]

Sir in Lessee case you not book lease expense in first year ???? i think in first year your skip or not mention entry Lease Expense 17620.08 Right our Use Asset (ROA) 17620.08 after this entry my balance sheet is tally at the end of all year.

[@hw2864]

Are we supposed to recognize rental revenue 12,000 every year for lessor? Do we need to apply pv concept to lessor as well?

[@AccountingLectures]

Which minute are you referring to?

[@tarekomraan9302]

Thank you very much I just have a question the first payment will be at the end of each period or the first??? also is the 12,000 separate from 60,000 or include it ?? I really appreciate your effort

[@paolasalcedo1271]

Hi Professor Farhadt, how can this new requirement be applied for the rental lease of office building?

[@danielchoi4598]

from lessor's perspective on dec 31 yr 1, you also have to make an entry for another 17620 that the lessee pays on that date

[@404TRUCKERTV]

Yes Sir, the accounting gods are shining down on you. Thank you very much for this presentation. 👍

[@AccountingLectures]

Thank you and please visit the website for more farhatlectures.com/

[@iceyt3387]

Thank you so much for the video. I would like to know how to calculate the annual lease payment amount ＄17620 in Excel　7:38　　What kind of formula should we use in Excel？I used PMT function as =PMT(6%,3,49924) and it gives the wrong amount.

[@saraevecaruthers341]

same. for some reason he uses fair value - residual as PV. is this correct?