If a city has an unpaid capital lease obligation at the beginning of its fiscal year,the journal entry in the debt service fund to record the lease payment during that fiscal year will include:

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The lease payment will reduce the principal amount owed on the capital lease obligation, which means there will be a debit to Expenditures-Principal of Capital Lease Obligation. The unpaid balance of the capital lease obligation will be a credit to Capital Lease Obligations Payable. Interest Expense on Capital Leases is only recorded when interest is incurred on the unpaid balance of the capital lease obligation.

If a City Has an Unpaid Capital Lease Obligation at the Beginning