What Is a Lessor?

In the lease contract, the person who delivers the leased property to the lessee for use and income is the lessor. The lessor shall in principle be the owner of the leased property, and the person who enjoys the usufruct or lease right of the leased property may be the lessor, with exceptions, such as the lease of state-owned land use rights and the subleasing of houses. A set of principles, methods and procedures for accounting treatment of a lessor's lease business. From the perspective of the lessor, leases can be divided into operating leases, sales-type finance leases, direct finance leases, and debt-financing finance leases, and their accounting treatments are also different.

Lessor

As required by law or contract

1. The lessor shall transfer the

Individuals renting a house and earning income should follow the law

Lease trade

(1) Determine the total investment of the lessor. The lessor's total lease investment is the undiscounted total income from the leased assets, which includes: the minimum lease proceeds and the unsecured residual value expected to be received. The minimum lease payment shall be debited to the "" Receivable Lease "account on the lease start date, and the unsecured residual value shall be debited to the" Estimated Residual Value "account.

(2) Determine the appropriate interest rate. The interest rate used by the lessor for lease accounting is the interest rate that enables the following equation to be established: the fair market value of the leased assets on the lease start date = the present value of the minimum lease proceeds-+ the present value of the unsecured residual value. This rate is the interest rate inherent in the lease.

(3) Determine the net investment. With the total investment and the appropriate interest rate, the net investment for lease can be determined, which is the sum of the present value of the minimum lease proceeds and the unsecured residual value present value. The present value of the minimum lease amount in the net investment should be credited to the sales receipt and release account on the lease start date, indicating the present value of the amount that the lessee will pay to the lessor. If there is no unsecured residual value, the net investment is the present value of the minimum lease proceeds, which is the fair market value of the leased assets on the lease start date.

(4) Calculate unrealized interest income. On the basis of obtaining the total investment and the net investment, the unrealized interest income can be calculated, which is the difference between the total investment and the net investment. This amount should be credited to the unrealized interest income account on the lease start date. This part of revenue will be recognized in installments during the lease term.

(5) Bookkeeping of the cost of leased assets. The cost of leased assets or the carrying amount less the present value of the unsecured residual value should be debited to the cost of sales account on the lease start date. If there is no unsecured residual value, the cost or book value of the leased asset is recorded in the cost of sales account. As the lessor credits the sales income account at the fair value at the lease start date, and debits the cost of sales account at the cost of assets, it may constitute a sale profit for the lessor at the lease start date.

House to rent

(6) Bookkeeping of rents. The rent received in each period shall be debited to the bank deposit and the unrealized interest income account, and credited to the lease receivables and the interest income account.

(7) There is a guarantee clause. If there is a guarantee clause for the minimum residual value of the leased asset in the lease or a penalty clause for non-continuation of the lease, the balance of the lease receivable account at the end of the lease period must be equal to the guaranteed residual value.

(8) Regular inspection of unsecured residual value. If the original valuation is too high, resulting in a decrease in the net investment amount, it shall be treated as a loss; but if the original valuation is found to be too low, it shall not be treated.

Accounting for direct financial leases Lessors Due to the only difference between direct financial leases and sales-type financial leases, the lessor does not have a profit or loss on the lease start date, that is, the book value of the leased assets on the lease start date is equal to the fair value. Therefore, the accounting for the lease start date is slightly different. Under the direct financing lease, when the net method is used, the lessor should debit the lease receivable and estimated residual value account with the leased net investment, and credit the equipment account; when the gross method is used, the total lease investment should be debited separately. Collection of lease payments, estimated residual value accounts, credit equipment and unrealized interest income accounts. Unrealized interest income needs to be amortized during the lease term and converted into realized interest income.

Accounting for financial leases of debt-operating financial leases In addition to lessors and lessees, debt-operating financial leases also involve third-party lenders directly. Therefore, accounting is more complicated than the previous two:

House to rent

(1) Determine the rent receivable from the lessor. Rent receivable from lessor = total rent-(long-term loan principal + interest)

(2) Determine the total investment of the lessor. According to US Financial Accounting Standards Announcement 13 (SFAS13), the total investment amount consists of the following four parts:

The rental income received from the lessee less the principal and interest payable to the lender.

Realizable investment tax credits (ie investment tax deductions) recognized in the transaction.

Estimated residual value of leased assets.

Unearned and deferred income consisting of:

(1) Estimated value of lease income (or loss) before taxes minus direct costs on the lease date.

(2) Investment tax credit for the remaining lease period, that is, the total investment of the lessor = rent receivable from the lessor + investment tax deduction + estimated residual value-unrealized lease income.

(3) Determine the appropriate interest rate. The lessor's investment on the lease implementation date is known, and the return on investment must be calculated. The return on investment is calculated based on the annual cash outflows. It must be noted that the return on investment is different from the interest rate embedded in the lease.

(4) Determine the net investment. The lessor's net investment is calculated on an annual basis. Annual net investment = rental balance receivable by the lessor + estimated residual value-unrealized lease income-deferred income tax balance; or annual net investment = net investment in the previous year-(cash flow in the previous year-net investment in the previous year × return on investment) .

(5) Determine the net profit of the lessor. Lessor's net profit = pre-tax benefit of lease investment + tax deduction benefit of investment-accounting confirmation of income tax expenses. It is the main benefit arising from the financing lease of operating a debt.

Lease trade

(6) Determine deferred income tax. Deferred income tax is due to the use of accelerated depreciation by the lessor to obtain ownership of leased assets, and thus obtain the benefit of deferred income tax. Also known as the lessor's reinvestment benefit. It is the difference between the income tax expense confirmed by the accountant and the tax income tax payment amount, which is included in the "deferred tax".