Finance Lease Lessor Journal Entries

 Here are the journal entries for a lessor in a finance lease scenario:

1. Initial Recognition of the Lease:

When the lease agreement is signed and the lessor records the lease receivable and removes the leased asset from the books.

Particulars	Debit (₹)	Credit (₹)
Lease Receivable A/c	500,000
To Equipment A/c		500,000
(Being leased asset removed from books and lease receivable recorded)

2. Recognition of Interest Income:

Periodically, the lessor recognizes interest income over the lease term.

Particulars	Debit (₹)	Credit (₹)
Lease Receivable A/c	30,000
To Interest Income A/c		30,000
(Being interest income recognized on lease receivable)

3. Receipt of Lease Payments:

When the lessor receives lease payments from the lessee.

Particulars	Debit (₹)	Credit (₹)
Cash/Bank A/c	50,000
To Lease Receivable A/c		50,000
(Being lease payment received from lessee)

4. Initial Direct Costs:

Initial direct costs related to the lease can be capitalized and amortized over the lease term.

Particulars	Debit (₹)	Credit (₹)
Initial Direct Costs A/c	10,000
To Cash/Bank A/c		10,000
(Being initial direct costs paid)

Particulars	Debit (₹)	Credit (₹)
Lease Receivable A/c	10,000
To Initial Direct Costs A/c		10,000
(Being initial direct costs capitalized)

5. Amortization of Initial Direct Costs:

Amortizing the initial direct costs over the lease term.

Particulars	Debit (₹)	Credit (₹)
Amortization Expense A/c	2,000
To Lease Receivable A/c		2,000
(Being amortization of initial direct costs)

Summary:

• Initial Recognition: Records lease receivable and removes leased asset.
• Interest Income: Periodic recognition of interest income.
• Lease Payments: Records receipt of lease payments.
• Initial Direct Costs: Capitalizes and amortizes initial direct costs.

These entries help in accurately recording the financial activities related to a finance lease from the perspective of the lessor.