How to Account for an Equipment Lease

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Many business owners choose to lease equipment for their business rather than purchase the equipment. Leasing equipment allows a business owner to avoid a large initial cash outlay, to maintain equipment that is always under manufacturer warranty, and to upgrade equipment when needed without absorbing losses on sales of outdated company-owned equipment. Accounting for an equipment lease is no different than accounting for any other regular, monthly, business expenditure.

Things You'll Need

  • Equipment lease
  • Pay the monthly equipment lease amount by check, bank transfer, cash or other payment method your business uses.

  • Record a reduction to the bank account used to make the lease payment to reflect the outflow of cash to the leasing company. A reduction to cash in general ledger terms is a "credit."

  • Record an expense to the appropriate expense account established for the equipment leasing cost. For example, a copier might be an "Office Equipment" expense. An increase to expenses in general ledger terms is a "debit."

  • File the lease paperwork and create a tickler file to notify you a couple of months in advance of the lease end date. That way you will have time to assess your options for renewal or exchange for an upgraded product and compare costs with other leasing companies.

Tips & Warnings

  • Repairs or supplies for the leased equipment should be recorded as decreases to the account used for payment and increases to an expense account designated for equipment usage costs.

References

  • "Principles of Accounting;" A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
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