Sam of A-Z Flowers has been doing her research, working alongside her accountant to try to decide on whether she can afford a flower delivery van for her growing floral business. She finds a van to lease that would manage all her needs and fits within her budget. To lease would cost $22,000.00 with monthly payments of $348.29 and interest at 4.5%. She reviews the three-year lease and signs. For her accountant to review the lease and run through the numbers, he would need to know how to write the journal entries to track this large transaction.

Accounting for Capital Lease

Let's say that the lease Sam is signing with the small business leasing company meets one of the criteria to be considered a capital lease. At the start of the lease, her accountant would make a journal entry recognizing both an asset and a liability in the books.