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Abstract
This article discusses, through a case study, the inconsistency that can occur in a lease between the lessor and the lessee accounting. While accounting standards, as promulgated by the Financial Accounting Standards Board (FASB), seek to achieve symmetry in accounting, the involved parties can manipulate the terms of the lease contract so that each may have accounts that best suit their interests. The lessor prefers to capitalize on the lease because it incurs more revenue in the first few years (as opposed to an operational lease). On the other hand, the lessee prefers not to capitalize because capitalizable leases result in higher costs (than operational) in the first few years of the lease. The article explains, through an example, how a lease can be structured so that both parties are satisfied, taking advantage of flaws in accounting standards.
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