Recording operating and capital leases by the lessee
Operating lease—Governmental and proprietary funds
Direct financing lease—Governmental funds
Government-wide financial statements and proprietary funds
Other Leasing Issues for Governmental Entities
Operating Leases with Scheduled Rent Increases
Fiscal Funding and Cancellation Clauses
Accounting for leases is one of the more technically challenging areas in accounting, including governmental accounting. This chapter describes the accounting and financial reporting requirements for both lessees and lessors. Essentially, these accounting requirements depend on whether the lease is classified as an operating lease or a capital lease. This classification is made in the same manner by governmental entities as by commercial enterprises. Two important differences must be considered, however. The first is whether the lease is accounted for by a governmental fund or a proprietary fund. The accounting and financial reporting requirements differ significantly. The second is whether an operating lease has scheduled rent increases inherent in its terms and conditions. The accounting for such scheduled rent increases differs for governmental entities from the accounting used by commercial enterprises for scheduled rent ...