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Learn about the differences between finance and operating leases, along with the journal entries needed for each type of lease. In this video, I walk students through a full example of lease accounting, including the journal entries from start to finish.

𝗖𝗵𝗲𝗰𝗸 𝘂𝘀 𝗼𝘂𝘁 𝗼𝗻 𝘀𝗼𝗰𝗶𝗮𝗹 𝗺𝗲𝗱𝗶𝗮:

Video Chapters:
0:00 - Intro
0:31 - Distinguishing Between Finance Lease vs Operating Lease
2:13 - What Happens Throughout the Life of a Lease
3:06 - Finance Lease Example
10:40 - Operating Lease Example

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𝗖𝗵𝗲𝗰𝗸 𝘂𝘀 𝗼𝘂𝘁 𝗼𝗻 𝘀𝗼𝗰𝗶𝗮𝗹 𝗺𝗲𝗱𝗶𝗮:

𝗧𝗵𝗮𝗻𝗸𝘆𝗼𝘂 𝗳𝗼𝗿 𝘄𝗮𝘁𝗰𝗵𝗶𝗻𝗴: Free Cheat Sheet Included! Master Lease Accounting for the CPA Exam | Maxwell CPA Review

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𝗥𝗲𝗹𝗮𝘁𝗲𝗱 𝗦𝗲𝗮𝗿𝗰𝗵𝗲𝘀:
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[anialeus]

Thank you so much, this was so easy to understand and follow!

[pangman]

You need to redo the Operating Lease slides. The "plug" entry for the Right of Use Asset should be a CREDIT. It needs to REDUCE the debit balance for ROA on the balance sheet.

[jamesgordon]

We are doing an entire chapter on this in Intermediate Accounting and it's almost making me want to quit Accounting. It goes into an insane amount of detail and my professor expects us to know every last detail. I appreciate a more simple explanation on this topic which assures me I haven't lost my mind. Thank you.

[jeannie]

When recording the Operating Lease, the Right of Use entry should be a credit instead of a debit. Thank you for this clear and concise explanation of how to record the different leases.

[KCalm]

Thanks for the vid! The process and/or nomenclature of accounting for the operating lease is a bit obtuse. Namely that we're crediting the lease liability an amount equivalent to the effective interest ($124, 500 * 10%) and then debiting the least liability $50, 000. I don't understand why. We can get the same result and account balances with a less ambiguous approach.

Credit: Cash $50, 000 | Debit: Interest Expense $12, 450, Debit: Lease liability $37, 550

Debit: Amortization of ROU $37, 550 | Credit: ROU Asset $37, 550

The Lease liability and ROU Asset carrying values work out to be the same, and the Interest Expense + Amortization of ROU expense is equivalent to lease expense on the earnings sheet.

[paulinagowelko]

This Video safed my life in my Financial Accounting exam ❤️

[Grandesecole]

Thank YOU SO MUCH!! Keep forgetting about lease accounting

[elizabethhale]

Great video, so essentially, the answer is 45, 645. As year 1 starts on day 1 of the lease term.

[sridharps]

In operating lease 2nd journal entries, right to use account has to be credited so eventually at the end of lease it becomes zero, however in the video it is being debited

[cydnimitchell]

This was extremely helpful! Thank you for sharing.

[carlaparijs]

Great video! However the 2nd JE on the operating lease had me so confused for a few minutes! Haha the devil's in the details in our field isn't it? Love your content though, this definitely gave a simple and concise explanation of ASC 842.

[jyotmadaan]

Thank you very much for making it so easy to understand!

[sagartandurkar]

an insta subscribe, i was trying to look for this explanation showing the difference in calculation for the asc 842 for both operation and finance leases but couldn't find it in youtube. your explanation and example were both simple. Thanks a lot

[gabrielladoucette]

Why don’t you take the first lease payment at lease commencement? Shouldn’t the year 2 journal entry be an interest expense of 10% * (124, 500-50, 000) = 74, 500? Where 50, 000 was the amount paid at lease commencement. Interest is not taken at year 1 since interest expense only occur with the passage of time, but I’m pretty sure the first lease payment is made at lease commencement and so the lease liability will reduce by the full $50, 000

[raidenxx]

Amazing video! Can you please a criteria testing in spreadsheet to show us the whole process and how it should be disclosed? 2:35 also on 11:49 can you please create the complete journal entries? Is expense debited and credited to lease liability? Just want to confirm 😅

[noohesbai]

this video really helped me, thanks a lot! I really appreciate your content, keep it up!

[aljafarimohammad]

So, any additional entry after the lease end and the balance in Right to use the asset Zero? Should we record the asset in our book? Or the asset list?

[twinstars]

Does the decrease in ROU ALWAYS equal to the decrease in Lease liability every year? In what situation would they be different?

[navornever]

Great video, it was very easy to follow!

[rohaneditz]

Hey can you provide more questions on lease