redskins44

Sorry for repost, wouldn't let me edit for some reason


I figured out your second point;

If you're making beginning of year payments, and also, your payments are due once annually, then yeah, in that case, there will be 0 interest accrued at the inception of the lease, the whole first payment would go to principal.

Leases don't work that way tho; they get paid monthly. So at the end of the year, you're going to show some interest and some principal. so although your first monthly payment will be all principal, you're still accruing interest as of the inception of the lease, so come the end of the year, you'll report it the way I showed in my example.

the only uncertainty I have now is whether principal payment is investing or financing, and I'm leaning more towards financing now, but will check that out later.

smuggycfa

Don't get in mess searching over the internet.

CFAI is clear at this point:

Lessee: Principal payment --> Financing CF
Interest expense --> Operating of Financing CF (if company reports under IFRS)

Lessor: Principal payment -->Investing CF
Interest revenue-->Operating of Financing CF (if company reports under IFRS)

bbtomato

close; this is from schwesser:

Under U.S. GAAP, interest expense is reported in the cash flow statement as an outflow from operating activitiesand the principal payment is reported as an outflow from financing activities.

Professor’s Note: Under IFRS, firms can choose to report interest expense in the cash flow statement as an operating activity or as a financing activity.