Advance payments made by the lessee on an operating lease are considered to be:
A) Lease expense.
B) Amortization of the right-of-use asset.
C) Deferred revenue to the lessor.
D) A prepayment of interest expense.

Question

Quizplus · Accepted Answer

Advance payments made by the lessee on an operating lease are deferred revenue to the lessor as they represent unearned income for the lessor until the lease period has been completed. The lessor will recognize the revenue over the lease period as they provide the leased asset to the lessee. The lessee will not recognize the advance payments as an expense until the period in which the lease payments become due.

Advance Payments Made by the Lessee on an Operating Lease