AirwaySim

Should leases be considered liabilities as long as they exist?

if you sign a lease for one year, isnt that a liability that declines by the monthly amount each month?

or I am wrong?

I know lease is an expense and usually as asset becomes an expense as it is used.

Thanks to any CPA or ATG student

Quote from: ekaneti on May 27, 2021, 10:15:35 PM
Should leases be considered liabilities as long as they exist?

if you sign a lease for one year, isnt that a liability that declines by the monthly amount each month?

or I am wrong?

I know lease is an expense and usually as asset becomes an expense as it is used.

Thanks to any CPA or ATG student

The accounting model does not go into that level of detail.

The leases are considered ongoing expense.  But when you start a new lease and prepay 3-4 months, that is considered to be asset (pre-paid leases) until it is used up

Thanks

So, you're picking the bone between GAAP and IFRS lease accounting here. The game considers all leases to be operational, and according to GAAP, operational leases are not balance sheet items. iFRS says to record both financial and operational leases on the balance sheet.

Under GAAP, it's still appropriate to record a liability for prepaid lease income as it is not earned until either the appropriate amount of time passes or the contract is terminated.

...on a somewhat related issue, when leasing an aircraft, are the 'monthly payments' withdrawn on a pro-rata daily basis? Given that there is a penalty for returning a lease early, is there a point where you should just let the lease 'run out' and not pay the penalty?

Thanks.

Ace

Quote from: Ace McCool on August 06, 2021, 11:54:22 AM
...on a somewhat related issue, when leasing an aircraft, are the 'monthly payments' withdrawn on a pro-rata daily basis? Given that there is a penalty for returning a lease early, is there a point where you should just let the lease 'run out' and not pay the penalty?

Thanks.

Ace

Leases are paid on a daily basis. Canning the lease is half the remaining balance is superior to letting it run out always.