Finance vs. Operating Lease (Lessee's Perspective)

This video shows how the accounting for a lease would be different if the lessee used a finance lease vs. an operating lease under the new lease rule. With either classification, the lessee would initially recognize a right-of-use asset and a liability for the lease payments. Each time a lease payment is made, the lease liability would decrease. The expenses recognized each period, however, are different depending on whether the lease is a finance lease or an operating lease. With a finance lease, the lessee will separately recognize interest expense and amortization expense each period, and the total of these two expenses will be higher in the early years of the lease and lower in the later years of the lease. With an operating lease, in contrast, the lessee just recognizes one expense account called lease expense each period for the amount of the lease payment. The lease expense is the same amount each period, and it accounts for both interest accrued on the lease liability and amortization.— Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. — SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • A 44-PAGE GUIDE TO U.S. TAXATION • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • MANY MORE FREE PDF GUIDES AND SPREADSHEETS http://eepurl.com/dIaa5z — SUPPORT EDSPIRA ON PATREON *  / prof_mclaughlin   — GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT https://edspira.thinkific.com — LISTEN TO THE SCHEME PODCAST Apple Podcasts: https://podcasts.apple.com/us/podcast... Spotify: https://open.spotify.com/show/4WaNTqV... Website: https://www.edspira.com/podcast-2/ — GET TAX TIPS ON TIKTOK   / prof_mclaughlin   — ACCESS INDEX OF VIDEOS https://www.edspira.com/index — CONNECT WITH EDSPIRA Facebook:   / edspira   Instagram:   / edspiradotcom   LinkedIn:   / edspira   — CONNECT WITH MICHAEL Twitter:   / prof_mclaughlin   LinkedIn:   / prof-michael-mclaughlin   — ABOUT EDSPIRA AND ITS CREATOR https://www.edspira.com/about/ https://michaelmclaughlin.com