Finance Lease Journal Entry for Algoma Incorporated
What is the journal entry for Algoma Incorporated signing a five-year lease for office equipment?
What components are included in a journal entry? How does Algoma record the inception of this finance lease?
Journal Entry Explanation
When Algoma Incorporated signs a five-year lease for office equipment with Office Solutions, the present value of the lease payments is $12,580.
The journal entry that Algoma records at the inception of this finance lease is as follows:
Transaction General Journal Debit Credit
1. Right to Use Assets 12580
Lease Liability 12580
(To record inception of finance lease)
Debit represents what comes in (asset), while credit is used to record the increase in liability.