Accounting: Capital leases question help please?

Question

How are capital leases recorded initially? Does it matter if it is a direct financing lease or a sales-type lease?

Answer 1

Capitalise that part of the lease that represents the cost of the asset and the credit goes to lease obligations payable. Each time you make a monthly repayment, part of the amt goes to reduce your lease obligations, and part goes to the income statement as interest.

Answer 2

Capital leases are a long-term liability for the term of the lease. Interest expenses are generally recorded as such.