About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
2 3 1 Leases Explained

3 1 Leases Explained

Key Concepts

Definition of Leases

A lease is a contract between a lessee (the user) and a lessor (the owner) that grants the lessee the right to use an asset for a specified period in exchange for periodic payments.

Lessee and Lessor

The lessee is the party that uses the leased asset, while the lessor is the party that owns the asset and grants the lessee the right to use it. The lessee makes payments to the lessor in exchange for the use of the asset.

Operating Leases vs. Finance Leases

Operating leases are short-term leases where the risks and rewards of ownership remain with the lessor. Finance leases, on the other hand, transfer most of the risks and rewards of ownership to the lessee, often for the entire useful life of the asset.

Accounting for Leases

For finance leases, the lessee records the leased asset as an asset on the balance sheet and the corresponding lease liability. The asset is depreciated over its useful life, and the lease liability is amortized over the lease term. For operating leases, the lessee records the lease payments as an expense on the income statement.

Lease Term and Lease Payments

The lease term is the period over which the lessee has the right to use the leased asset. Lease payments are the periodic payments made by the lessee to the lessor for the use of the asset. These payments can be fixed or variable, depending on the terms of the lease.

Discount Rate

The discount rate is used to calculate the present value of future lease payments. It reflects the lessee's incremental borrowing rate or the rate implicit in the lease, if readily determinable. The present value of the lease payments is used to determine the lease liability.

Examples and Analogies

Consider a finance lease as "renting to own" a car. The lessee makes payments that are akin to a loan, and the car is treated as an asset on the balance sheet. An operating lease is like "renting" an apartment, where the lessee makes periodic payments but does not own the property.

The discount rate is like the "interest rate" on a loan, used to calculate the current value of future payments. The lease term is the "duration" of the rental agreement, and lease payments are the "rent" paid for the use of the asset.

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