Finance lease

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Does anyone know the difference betweena finance lease and a operating lease and how we would deal with these?

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Finance lease

    what are they?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Finance lease

    I think that an operating lease is short term only- like hiring a removal van for a week. This is just recorded in the P+L as an expense.<BR><BR>A finance lease is long term and treated similar to a hire-purchase. You would record the asset in the balance sheet as you would for any other F.A you own, create a prov for depn. You would recors the liability of the loan on the B.S as well. Then you would charge yearly depn and interest for year you pay on loan to the P+L. <BR><BR>Hope this helps. Good luck
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Finance lease

    .
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Finance lease

    With an operating lease you rent a peice of equipment. You do not record its value but you record its rent as an expanse just like you would for a building.<BR><BR>With a finance lease you record the equipment as an asset of your own and the total of what you have to pay back is recorded as a liability. This liability is hence reduced as time goes by as money goes from your bank account to paying off the effective creditor (the leasor).<BR><BR>You assume a lease is an operating lease if you have to pay back more than 90% of the value of the item over the time you require it.

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