Lessee accounting refers to the financial reporting process for individuals or entities that lease assets from another party, known as the lessor. It involves recognizing the right-of-use asset and lease liability on the balance sheet, reflecting the lessee's obligation to make lease payments and their right to use the leased asset over the lease term. This accounting method provides a clearer picture of a lessee's financial position by capturing both assets and liabilities associated with leasing.
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