lessor

Examples of lessor in the following topics:

• 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.
  • The asset remains on the lessor's books as an owned asset.
  • The lessor records depreciation expense over the life of the asset.
  • These are permanently affixed to the property and revert to the lessor at the termination of the lease.
  • Security Deposits: Nonrefundable security deposits:deferred by the lessor as unearned revenue; capitalized by the lessee as a prepaid rent expense until the lessor considers the deposit earned.

• 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 shifts risks to the lessor, but if the property market has shown steady growth over time, a business that depends on leased property is sacrificing capital gains.

• Impact of Leasing on the Income Statement

  • 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.
  • This is because in the case of a lease the ultimate ownership is retained by the lessor; and, it is in their best interest to maintain the asset in its best working order.
  • 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.
  • As a consequence, a lessor can gain the use of a much needed asset for a fraction of the full price of ownership.
  • As a corollary, a lessor could be granted the use of an asset that could otherwise be cost prohibitive.

• Capital Leases vs. Operating Leases

  • the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee;
  • The lessor leases the equipment to the lessee which pays periodically a rent.
  • Unlike a Financial Lease or Finance lease, at the end of the operating lease the title to the asset does not pass to the lessee, but remains with the lessor.

• Conclusions

  • Customer needs and desires must be ascertained, insurance and liability issues must be addressed, employee training must be ongoing, and an incentive must be provided for customers to return leased products to the lessor after use.

• Being Aware of Off-Balance-Sheet Financing

  • For example, if a company defaults on the rental payments required by an operating lease, the lessor could repossess the assets or take legal action, either of which could be detrimental to the success of the company.