when a lessor enters a sales type lease, a net-investment is recorded on the balance sheet as an asset and is capitalized as time passes. my question is - when a entry for an asset is recorded at the inception on the balance sheet, what is the corresponding entry added to the liabilities/equity? or where is the amount added. since the equation has to be balanced: A = L + E, assuming a single asset that the lessor enters in the sales type lease: every year it has to reduce the position i.e. in yr1 NetInvestment (Asset) = A in yr2 NetInvestment (Asset) = A - currentportion the “currentportion”: is it recorded in equity on RHS?? this may be related to accounting but can anyone explain this ?
Dt Lease Receivable (Gross Investment in Leased Equipment) 120 Dt COGS 70 Ct Sales (Net Investment in Leased Equipment) 90 Ct Equipment 70 Ct Unearned Interest 30 Difference between Sales and COGS is the dealer’s profit Lease payments reduce Receivable and recognize revenue: Cr Lease Receivable 20 Dt Cash 20 Dt Unearned Interest 5 (30/120=0.25*20=5) Ct Interest Revenue 5
thanks alpenchev