Subsequent Accounting for Finance Leases
Expense Recognition
Under a finance lease, the lessee separately recognizes interest expense on the lease liability and amortization expense on the Right-of-Use asset. This generally results in higher total lease expense during the earlier years of the lease.
Tip
Finance lease expense is front-loaded because interest expense declines as the lease liability decreases.
Summary
Finance leases recognize separate interest and amortization expenses throughout the lease term.