CPA Financial Accounting and Reporting (FAR)

Certified Public Accountant Financial Accounting and Reporting examination.

Conceptual Framework of Financial AccountingFinancial Statement Preparation and PresentationRevenue Recognition
Accounting for Income TaxesLeases: Lessee and Lessor AccountingBusiness Combinations and Consolidation
Analyzing Financial StatementsApplying GAAP and IFRS to Real-World ScenariosEthics and Professional Responsibility in Financial Reporting
Mastering Multiple-Choice QuestionsTime Management on Exam DayApproaching Simulations and Case Studies
Conceptual Framework...Financial Statement ...Revenue RecognitionAccounting for Incom...Leases: Lessee and L...Business Combination...Analyzing Financial ...Applying GAAP and IF...Ethics and Professio...Mastering Multiple-C...Time Management on E...Approaching Simulati...
Advanced Topics

Leases: Lessee and Lessor Accounting

Understanding Lease Accounting

Lease accounting standards (ASC 842/IFRS 16) require organizations to recognize assets and liabilities for most leases.

Lessee Accounting

  • Recognize a right-of-use asset and a corresponding lease liability at the present value of lease payments.
  • Amortize the asset and record interest on the liability over the lease term.

Lessor Accounting

  • Classify leases as sales-type, direct financing, or operating.
  • Recognize lease income based on the lease type.

Real-World Application

Lease accounting affects company balance sheets, debt ratios, and financial analysis.

Examples

  • A retailer leases store space and records a right-of-use asset for the total lease commitment.

  • A car leasing company recognizes operating lease income as vehicles are leased to customers.

In a Nutshell

Modern lease standards put almost all leases on the balance sheet, impacting financial ratios and transparency.

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Business Combinations and Consolidation