Question

Which accounts are affected by the lease payment for a lease that is classified as an operating lease? Assume even lease payments over the term of the lease.

Answer 1

In case of operating lease, ownership of the asset remains with the lessor. Lessee only pays the lease rentals. Lease rentals are expenses for the lessee and income to the lessor. Lessor claims depreciation on the leased asset.

From the lessee's (person taking asset on lease) point of view, accounts affected are rental expense account, cash account and rent payable account. Cash account is affected when lease rental expenses are paid and lease rent payable is affected when lease rentals are due but not paid.

From the lessor's (person giving the asset on lease) point of view, accounts affected are lease rental income, cash account and rent receivable account.