I think it is surprising how many things you take for granted in your work. In this article, I would like to introduce the difference between rents and leases, which I myself use as a matter of course.
First of all, renting/leasing is the process of contracting with a specialized company to rent land such as parking lots, buildings, rooms, office automation equipment such as copiers and computers, automobiles, etc. for a period of 6 months, 1 year, or longer. This type of lease is used when there is insufficient funds to purchase the product in question, the product will have a relatively short useful life, or the product will undergo a model change, and it is more profitable to lease the product.
For accounting purposes, leases are classified as either finance leases or operating leases. Finance leases are defined as follows
(1) A lease that cannot be terminated in the middle of the lease term, or a lease that is similar to a finance lease (a lease that cannot be terminated in the middle of the lease term)
(ii) The lessee can substantially enjoy the economic benefits of the leased asset and should substantially bear the costs arising from the use of the leased asset (full payout).
Operating leases are leases that meet the above requirements, and are classified into two categories: leases that transfer the title of leased asset to the lessee and leases that do not transfer the title of leased asset to the lessee. An operating lease is any other type of lease.
The difference between a lease and a leased asset is that a lease is a method used when the contract is for a relatively long term.
The term of the lease is determined by the economic life of the asset, and the lessee pays the purchase price plus interest, taxes, and insurance fees. Therefore, the lease is characterized by higher amounts. The use of either rents or lease payments in the accounts has no effect on net income. However, with a few exceptions, finance leases are treated as sales transactions, so the account title of “rents” cannot be used.
The term “rents” or “lease payments” varies depending on the nature of the contract and other factors, such as whether it is treated as a lease transaction or a sales transaction. I believe that thinking about the meaning of other tasks that we take for granted will lead to increased efficiency and performance.