What will be the journal entry for a finance lease from the perspective of the lessor?

In a finance lease from the perspective of the lessor, the correct journal entry primarily reflects the recognition of the lease receivable as an asset and the subsequent recognition of revenue over the lease term.

When a finance lease is initiated, the lessor essentially provides an asset to the lessee in exchange for future lease payments. The lessor will record a lease receivable to represent the sum of future cash flows expected from the lease payments. This receivable is recognized at the present value of the lease payments and any unguaranteed residual value. The credit to revenue indicates that the lessor will recognize income as the lease payments are earned over time, following the principles of revenue recognition.

This recording aligns with the financial reporting standards which require recognizing revenue as it is earned and defining receivables that reflect the future economic benefits expected to be received. The journal entry ensures that the lessor properly reflects both its asset position through the lease receivable and the revenue from the lease agreement.