Lessors account for direct-financing leases by recognizing an investment in the lease, any interest revenue and derecognizing the underlying asset. During the lease, the lease investment increases for any interest income and declines as lease payments are received. Any selling profit or initial direct costs are deferred, but losses are recorded at the inception of the financing lease. Under a finance lease, a lessee records the right-of-use asset and amortizes it over the life of the lease. The lessee also records a lease liability. As lease payments are made, a portion of each payment reduces the lease liability and the rest increases interest expense.