Finance lease
In accounting, finance lease means a lease that effectively transfers control of the asset — ownership transfer, purchase option reasonably certain, major part of life or substantially all of fair value, or a specialized asset — expensed as amortization plus interest.
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Authority
This definition follows ASC 842-10-25-2.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- capital lease (ASC 840 term)
Nearby in the catalog
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Also in Fixed assets & leases
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
- Operating lease vs finance leaseBoth put a right-of-use asset and a lease liability on the balance sheet under ASC 842; an operating lease shows one straight-line lease cost in the P&L, while a finance lease shows interest and amortization separately, front-loading the expense.Compare
- Journal entry for a finance lease under ASC 842At commencement, debit Right-of-use asset and credit Lease liability for the present value of the payments. Each payment debits Lease liability and credits Cash; each month-end debits Interest expense and credits Lease liability for the interest, and debits Amortization expense and credits the right-of-use asset for straight-line amortization.Entry
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.