Author: Dr. Thomas H. Oxner, University of Central Arkansas
Although students may be familiar with apartment leases, and possibly “rent-to-own” furniture stores or car leases, most accounting students will be unaware that businesses commonly use leasing for long-term financing of asset purchases or long-term usage contracts.
Lack of familiarity with this financing arrangement implies that the vocabulary and calculations will likewise be new territory for students. In addition, most debt agreements involve complementary journal entries on the borrower’s and lender’s journals. However, leasing agreements do not always result in complementary journal entries at the inception of the lease and in subsequent years.
This article is from the Accounting Instructor’s Resource, an electronic journal that provides teaching tips and insights to those who teach accounting and other business courses.