In one of my study guides, there is the following description of a finance lease “t. Finance lease expense consists of depreciation of the asset and interest on the loan. the finance lease payment consists of an operating outflow of cash (interest expense) and a financing outflow of cash (principal reduction)” I know that finance leases have been covered many times and I fully know that, in a finance lease, the yearly expense is the depreciation and interest on the loan. The thing is that I have not previously heard of the terms ‘expense’ and ‘payment’ being used as two completely different things. For the exam, will the use of either word warrant a different answer? Perhaps I’m misunderstanding something about finance leases… any help would be appreciated.
I don’t think it’s a big deal- they are just calling “expense” the dep & int “expense”, while the actual “payment” out the door is both CFO and CFF
Thanks. That is what I thought although, after a while, you start second guessing everything!