## Lessor Accounting – Journal Entries for Finance Lease
### Day 1 Recognition
The lessor derecognises the asset and recognises a lease receivable equal to the Net Investment:
```
Lease Receivable A/c Dr [Net Investment]
To PPE / Asset A/c [Net Investment]
```
> The asset leaves the lessor's books; it is replaced by a financial asset (receivable).
---
### Year-End Entries (Repeat Each Year)
Entry 1 – Recognise interest income for the year
```
Lease Receivable A/c Dr [Interest = Opening Balance × Rate]
To Interest Income A/c
```
Entry 2 – Record receipt of lease rental
```
Cash / Bank A/c Dr [Rental received]
To Lease Receivable A/c
```
Entry 3 – Transfer interest income to P&L
```
Interest Income A/c Dr
To P&L A/c
```
---
### Finance Charge Amortisation Schedule (Actuarial Method)
| Yr | Opening Balance | Interest @ r% | Instalment Received | Closing Balance |
|---|---|---|---|---|
| 1 | Net Investment | OB × r | Lease Rental | OB + Int − Rental |
| 2 | Previous closing | … | … | … |
| … | … | … | … | … |
| n | Small balance | Balancing | Final rental + GRV | ≈ UGRY |
Key check: At the end of the lease term, the closing balance of Lease Receivable should equal the UGRY (since that risk remains with the lessor).