Lesson: Lessee Accounting for Operating Leases

In this lesson, Nick Palazzolo, CPA, demystifies the treatment of operating leases from the lessee's perspective, starting with the identification and classification of a lease as operating. Nick highlights the differences and similarities between operating and finance leases and steps through the process of determining the classification, including the criteria and how to apply them to an example transaction. By walking through a detailed numerical example, he makes it clear how to calculate the right-of-use asset and lease liability at the lease commencement. Nick also explains the significance of lease payments, the interest rate, and how to prepare the amortization schedule for lease liability. Moreover, you'll learn precise journal entries for recording the operating lease and its lease payments. This practical run-through ensures a firm grasp of operating lease accounting, culminating in the journal entries for the end of the year.