Capital lease accounting by lessor

2. Sales-type lease

If, in the previous example, the carrying value of the machine in XYZs records is $55,000, the company has realized an immediate gain of $12,100 ($67,100-$55,000) because the fair value of the machine is greater than its book value. For a sales-type lease, the initial journal entry has two parts instead of just one.

Account Names




Lease receivable



Unearned interest revenue



Sales revenue




Cost of goods sold






Notice that, for sales-type leases, the first credit is to sales revenue. The income statement effect of these two entries is a $67,100 revenue and a $55,000 expense, for a total income of $12,100. Entries for subsequent lease payments are the same under both types of leases.

Now that weve covered standard capital leases from the perspective of both the lessee and the lessor, we will turn to a special type of lease called a sale-leaseback in the final article of this series.

Not a member?
See why people join our
online accounting course:
Lecture Contents:
Free Study Notes
Download free accounting study notes by signing up for our free newsletter (example):
First Name:
We never share or sell your e-mail to third parties.
Ask a Question
Suggest a Topic
Do you have an interesting question or topic?
Suggest it to be answered on