Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

In a finance lease, the lessee records:

A right-of-use asset and a lease liability on the balance sheet

Only lease expense on the income statement

A prepaid expense on the balance sheet

No entry until lease payments are made

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Verified step by step guidance

Understand the concept of a finance lease: A finance lease is a type of lease where the lessee effectively assumes ownership-like risks and rewards of the leased asset. This requires specific accounting treatment under standards like IFRS 16 or ASC 842.

Identify the accounting requirements for a finance lease: The lessee must recognize both a right-of-use asset and a lease liability on the balance sheet at the commencement of the lease. This reflects the obligation to make lease payments and the right to use the leased asset.

Determine the initial measurement of the lease liability: The lease liability is calculated as the present value of future lease payments, discounted using the interest rate implicit in the lease or the lessee's incremental borrowing rate.

Determine the initial measurement of the right-of-use asset: The right-of-use asset is initially measured at the same amount as the lease liability, adjusted for any lease payments made at or before the commencement date, initial direct costs, and any restoration obligations.

Understand the subsequent accounting treatment: Over the lease term, the lessee will amortize the right-of-use asset and recognize interest expense on the lease liability. These entries impact both the income statement and the balance sheet.