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Which of the following best describes the application of the expense recognition principle to bad debts?
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3. Accrual Accounting Concepts
Revenue Recognition and Expense Recognition
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A single lease expense is recognized on the income statement for which type of lease under U.S. GAAP?
A
Operating leases
B
Finance leases
C
Direct financing leases
D
Sales-type leases
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Understand the types of leases under U.S. GAAP: Operating leases, Finance leases, Direct financing leases, and Sales-type leases. Each has distinct accounting treatments.
Recall that under U.S. GAAP, operating leases require a single lease expense to be recognized on the income statement. This expense is typically recorded as a straight-line expense over the lease term.
For Finance leases, Direct financing leases, and Sales-type leases, the accounting treatment involves separating interest expense and amortization of the leased asset, resulting in multiple components on the income statement.
Focus on the key characteristic of operating leases: they do not transfer ownership or significant risks and rewards of the leased asset to the lessee, which is why a single lease expense is recognized.
Conclude that the correct answer is 'Operating leases,' as they are the only type of lease under U.S. GAAP where a single lease expense is recognized on the income statement.
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