Debt Financing Module 3

Flashcards covering key concepts regarding debt financing, including definitions of related terms and processes.

Lease

A contract that specifies the terms under which the owner of an asset agrees to transfer the right to use the asset to another party.

Lessee

The party that is granted the right to use property under the terms of a lease.

Lessor

The owner of property that is leased to another party.

Lessee Accounting

The process where the lessee records a leased asset and a lease liability on their balance sheet equal to the present value of the lease payments.

Amortization

The gradual reduction of the lease liability over the lease term down to a zero balance.

Depreciation of Leased Asset

The process of allocating the cost of a leased asset over its useful life, often referred to as amortization.

Amortization Expense

Typically calculated on a straight-line basis, representing the cost allocation of the leased asset.

Residual Value

The estimated value of an asset at the end of its useful life or lease term.

Lease Term

The length of time over which a lease is active, used to determine the asset’s life if it is returned to the lessor.

Amortization Table

A table setup to outline the payment schedule of lease installments separating interest expense and principal reduction.