Lease Liability Long-Term
Definition: PV of remaining lease payments beyond 12 months
Scope:ModerateDifficulty:Difficult
PV of remaining lease payments beyond 12 months
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Recognize finance lease (ASC 842) | ||
| PV of lease payments = $100,000. | ||
| Right-of-Use Asset | $100,000 | |
| Lease Liability | $100,000 | |
| Both asset and liability recognized at lease inception. | ||
| 2. Make lease payment | ||
| Monthly $2,000: $1,500 principal + $500 interest. | ||
| Lease Liability | $1,500 | |
| Interest ExpenseExpense+ | $500 | |
| CashAsset− | $2,000 | |
| Similar to loan amortization; liability declines each period. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Right-of-Use AssetRight-of-Use AssetAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$100,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$100,000.00
Lease LiabilityLease LiabilityAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$1,500.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$100,000.00
$98,500.00
Interest ExpenseExpense account — cost of borrowing money. Debits increase the balance. Credits decrease the balance.ExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$500.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$500.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$2,000.00
$2,000.00
DurationLong-Term
Related Reports
- Balance Sheet(Primary — LT liability)
- Form 10-K Annual Report(Primary — ASC 842 note)
External Links
- IFRS 16 — Wikipedia