MaxBodine
Level 1
‎February 09, 2022 08:41 PM

Need Journal entry to account for discounted asset from lease to own purchase in cash basis accounting

We purchased a $10,000 piece of equipment on a lease with an option to buy for $1 at the end of the lease. We are cash basis accounting. I have been posting the payments under equipment leasing. So now we purchased for $1. What would my General Journal entry look like to make it an asset at the end of the lease purchase. FMV is about $8500. 

We have Quickbooks Pro 2018. Thank you in advance.

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Rainflurry
Level 14
‎February 10, 2022 07:06 PM

Other questions

@MaxBodine 

 

You should talk to your CPA.  This sounds like a finance lease.  Did you treat it like a finance lease? 

 

You mentioned the payments were posted under 'Equipment Leasing' so it sounds like you possibly treated it like an operating lease and recorded the entire payment as an expense.  With finance leases, you treat the asset like you purchased it - record the asset and a corresponding liability when the asset is put into service and depreciate it.  Each lease payment then reduces the liability along with an interest expense.

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