Journal entries are documents that record the transactions between the lessees and lessors. Generally, both parties should record journal entries. The contents of a journal entry will vary depending on if the entry is completed by the lessor or the lessee and depending on if it a capital or operating lease. Lessee entries for capital leases should include:
The total amount of the lease payable, taking into account debit and lease payable account credit.
Transfer of depreciation to depreciation accumulated account
Payment of lease obligation and interest.
Lessee entries for operating leases should include:
Rent of lease account debit
Cash account credit