lessee

Examples of lessee in the following topics:

• Capital Leases vs. Operating Leases

  • the lessee (customer or borrower) will select an asset (equipment, vehicle, software);
  • the lessee will have use of that asset during the lease;
  • the lessee will pay a series of rentals or installments for the use of that asset;
  • ownership of the asset is transferred to the lessee at the end of the lease term;
  • The lessor leases the equipment to the lessee which pays periodically a rent.

• Advantages of Leasing

  • In these arrangements there is a lessee and a lessor.
  • The lessee is the receiver of the services or the assets under the lease contract while the lessor is the owner of the assets.
  • Leasing may provide more flexibility to a business which expects to grow or move in the relatively short term, because a lessee is not usually obliged to renew a lease at the end of its term.

• Overview of Lease Accounting

  • A lease is a contract calling for the lessee (user) to pay the lessor (owner) for use of an asset for a specified period.
  • Under an operating lease, the lessee records rent expense (debit) over the lease term, and a credit to either cash or rent payable.
  • Under a capital lease, the lessee does not record rent as an expense.
  • Leasehold Improvements: Improvements made by the lessee.
  • Refundable security deposits: treated as a receivable by the lessee; treated as a liability by the lessor until the deposit is refunded to the lessee.

• Impact of Leasing on the Income Statement

  • Once the vehicle is returned, the automobile lease agreement is completed and the parties (lessor and lessee) separate with no further obligations to each other (assuming there is no damage on the vehicle entitling the dealer to some further compensation).
  • The lessee has no further claim or right to use the vehicle and the lessor, or car dealer no longer collects any payment from the former lessee – the previous driver.
  • Rather, the lease gives the lessee the right to use the assets covered under the agreement for the duration of the contracted term; however, upon the completion of the said term the lessee is required to return the assets in question to the lessor, thereby completing the terms of the agreement.
  • Therefore, lessees can often benefit from comprehensive maintenance programs offered by lessors while still paying a discounted premium due to the fact that the asset is being leased, not purchased.
  • In many instances, this can better serve the lessee that an outright purchase would.

• Being Aware of Off-Balance-Sheet Financing

  • An operating lease does not transfer any of the rewards or risks of ownership, and as a result are not reported on the balance sheet of the lessee.
  • A liability is not recognized on the lessee's balance sheet even though the lessee has the obligation to pay an agreed upon amount in the future.

• Leasing

  • If the needs of the lessee suddenly change, it might be difficult to modify the terms of the lease.
  • In addition, lessees might not be able to return damaged products depending on the leasing conditions.

• The Supremacy Clause

  • Hunter's Lessee (1816) and Cohens v.