GAAP identifies two different approaches in reporting leases by the lessee: capital lease method and the operating lease method.
Which option best describes the financial statement effects of leasing on the financial statements of the lessee?

Question

Quizplus · Accepted Answer

No assets or liabilities are recorded for operating leases. The payment is recognized as rent expense. Under capital leases, an asset is capitalized and depreciated, and a liability is recorded which creates interest expense.

GAAP Identifies Two Different Approaches in Reporting Leases by the Lessee