Rental of property between the lessee and lessor for a fee. An operating lease does not meet the criteria for a Capital Lease. An example is renting of an apartment or automobile. The lessee debits rental expense and credits cash. Rental expense should be recognized on a straight-line basis, unless another systematic and rational basis is more representative of the time pattern in which benefit use is derived. The lessee shows nothing about the lease on the balance sheet. Lessee footnote disclosure includes future minimum lease payments in aggregate and for each of the five succeeding fiscal years, contingent rentals, and sublease rentals. The lessor, upon receipt of rental payments, debits cash and credits rental revenue. The lessor also records depreciation expense on the leased item and any expenses related to the leased property, such as maintenance expense. Normal accrual basis accounting techniques are followed for the recognition of income and expense. The lessor reports on his balance sheet the leased asset less accumulated depreciation. Footnote disclosure by the lessor includes the cost of property on lease or held for leasing by major class, minimum future rentals in the aggregate and for each of the five succeeding years, and contingent rentals. See also Direct Financing Lease; Sales Type Lease.
