For a short-term lease, which journal entry would typically recognise the lease payments in the lessee's accounts?

For a short-term lease, which journal entry would typically recognise the lease payments in the lessee's accounts?

• A. Dr Lease Expense; Cr Bank
• B. Dr PPE; Cr Cash
• C. Dr Finance Costs; Cr Lease Liability
• D. Dr Cash; Cr Bank

Answer: (A)

For a short-term lease, the lessee does not recognise a right-of-use asset or a lease liability. Instead, the lease payments are treated as an operating expense in the period they relate to. The appropriate journal entry when a payment is made is to debit Lease Expense and credit Cash/Bank. This records the cost of using the leased asset in that period and reduces cash. Why this fits: it reflects that the lease service was consumed during the period, and no asset or liability is recognised because the lease is short-term and falls under the exemption. Other options would imply assets or liabilities or simply reclassify cash without recognizing the lease cost. Debiting PPE would suggest acquiring a long-term asset; debiting Finance Costs with a lease liability would apply to a finance lease where a liability is recognised; and debiting Cash with credit to Bank would just move cash between accounts without recording the expense.

For a short-term lease, the lessee does not recognise a right-of-use asset or a lease liability. Instead, the lease payments are treated as an operating expense in the period they relate to. The appropriate journal entry when a payment is made is to debit Lease Expense and credit Cash/Bank. This records the cost of using the leased asset in that period and reduces cash.

Why this fits: it reflects that the lease service was consumed during the period, and no asset or liability is recognised because the lease is short-term and falls under the exemption.

Other options would imply assets or liabilities or simply reclassify cash without recognizing the lease cost. Debiting PPE would suggest acquiring a long-term asset; debiting Finance Costs with a lease liability would apply to a finance lease where a liability is recognised; and debiting Cash with credit to Bank would just move cash between accounts without recording the expense.