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An equipment lease that is not treated as a purchase because it does not meet all the purchase...

Question:

An equipment lease that is not treated as a purchase because it does not meet all the purchase criteria is then treated as a rental.

Rental lease payments are recorded as:

A. an asset

B. an operating expense

C. either of the above

Lease

A lease in accounting sense is defined as a contract agreement between the owner of the property, called lessor and the person will use the property, lessee to make use of the property, equipment, or land at a specified period of time in exchange of periodic payments made by the lessee to the lessor.

Answer and Explanation:

The correct answer is B. an operating expense

An operating lease is simply called as rent. Under the operating lease, the transfer of ownership retains under the name of the lessor and the property will return back at the end of the lease term.


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Accounting for Long-Term Liabilities

from Accounting 101: Financial Accounting

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