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Basically it is a difference between accrual and cash basis accounting. As an example terms of a 3 year lease are paying RS 20,000 immediately (not as a deposit but a payment) and then RS 3,000 a month for 3 years in a 3-year lease. Suppose this lease started 0n 3-1-08. Then on a cash basis the expense for the lessee (the person using the facilities and paying the rent) and the income for the lessor (the person who owns it and is collecting the rents) for the year 2008 is Rs 20,000 + 10 x (Rs 3,000) 0r Rs 50,000. However on an accrual basis you would use straight-line or the total payments over the lease life regardless of when paid divided by the time elapsed. So for the year 2008 the lessee would have expense of (20,000 + 36 x 3,000/36) x 10 or Rs 35,555 instead of Rs 50,000. Basically the up front payment has to be split equally over the 3 year period (straight line) instead of all counting in the first period.

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