Finance vs. Operating Lease (Lessee's Perspective)

This video shows how the accounting for a lease would be different if the lessee used a finance lease vs. an operating lease under the new lease rule. With either classification, the lessee would initially recognize a right-of-use asset and a liability for the lease payments. Each time a lease payment is made, the lease liability would decrease. The expenses recognized each period, however, are different depending on whether the lease is a finance lease or an operating lease. With a finance lease, the lessee will separately recognize interest expense and amortization expense each period, and the total of these two expenses will be higher in the early years of the lease and lower in the later years of the lease. With an operating lease, in contrast, the lessee just recognizes one expense account called lease expense each period for the amount of the lease payment. The lease expense is the same amount each period, and it accounts for both interest accrued on the lease liability and amortization.-
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[@FredMadera]

This was a fantastic explanation. Thank you for these valuable videos you provide.

[@LinhNguyen-oe9js]

Your videos are easy to follow and understand. I really appreciate what you have been doing, thank you so much for sharing! :>

[@gksdlsss]

You are genius. I am studying for FAR and I was lost. This video opened my eyes

[@Edspira]

I'm glad you found this video helpful my friend!

[@sarahwilson1104]

Thank you so much for the side by side comparison! Why can't my textbook show this??!!

[@motutoring5443]

Thanks for making accounting easy for us!! You saved my lifeee

[@davaflava323]

You are a fantastic teacher thank you for this content

[@gayathrim1898]

The concepts are clearly explained. Thanks

[@Tamara-ju3lh]

Thank you! I'm studying for FAR right now and this is one of my weak areas.

[@Edspira]

You got this!

[@ravingagunawardana178]

Amazing! Thanks!

[@talhaha]

Really helpful! Thanks

[@alvingalvez5520]

Thanks for your videos. Just wanna know the "reason" behind why we recognize interest expense on finance lease and not on operating lease.

[@carlyemamjomeh6952]

Such a helpful video

[@Kushiiiiiiiiiiii]

Thank you so much for this lecture .

[@natc9589]

Thank you.

[@thomson4420]

This guy is a genius

[@user-fl2ez6zg7q]

Thank you sir for the video it is really useful

[@gisellereyes7422]

This helped so much even in 2022!

[@Edspira]

Glad to hear that!

[@wowstarcraft]

Is this version updated for operating lease? I think j/e for 12/31/17 has to change to remove interest lease liability.

[@jjohnson649]

Why do we get the the present value od the residual value, is that the salvage value for leases

[@ahmedzakikhan7639]

Is this the treatment for the latest IFRS or GAAP ?

[@jessicawang96]

Why is the lease liability in the beginning not 69262 ( total faire vale of the truck)

[@dee2244327]

because you are only using the present value of the lease payments for liability and right of use asset. The fair value is only calculated for the fair value test to see if pv of lease payments is 90% or more of fair value

[@mathias3026]

Why should the company recognize more than 20K, and less than 20K (18,8K, in the 3rd year) in expenses in the finance lease example if the company actually only pays 20K in each year? It is not logical. The operating lease example is much more logical since the actual expense is recognized (20K in each year in the income statement).

[@akinkunmidavid6990]

I enjoyed your teaching and have subscribed. But the black board or background is not helping. Can you change it to white board pls?

[@Edspira]

Thanks for the feedback. Many people have differing opinions on this. Some people say the black background is easier on the eyes when looking at a computer screen for an extended amount of time. I'm basically using the same method as Khan Academy because it has been proven to be an effective method. Unfortunately I can please everyone, but I appreciate the feedback. If I get enough people requesting a background color change, then I'll take it into consideration. Thanks!

[@andrewioannou6318]

Black is better IMO

[@teddeep1923]

keep as is - the videos aren't longer than 10-15 minutes and detailed; much easier on the eyes with the background black.

[@tsilv4875]

@@Edspira I enjoyed listening to the lecture. You sound like a celebrity voice actor, but I can put my finger on who. I agree the blackground is better. Though, I do think that it can be improved with a slightly lighter neon text

[@10010011001100110101]

Idk why, this just isnt making sense no matter how many videos I watch