Minimum Lease Payments


DEFINITION of 'Minimum Lease Payments'

The lowest amount that a lessee can expect to make on a lease over its lifetime. Accountants calculate minimum lease payments in order to assign a present value to a lease. The method of calculating minimum lease payments is laid out in the Statement of Financial Accounting Standards No. 13 (FAS: 13), which was published by the Financial Accounting Standards Board in 1980.

BREAKING DOWN 'Minimum Lease Payments'

Although common sense suggests that the minimum lease payments on a 12-month lease at $1,000 a month should be $12,000, this number can be complicated by contractual clauses. Although executory costs like maintenance and insurance are usually excluded because they are the responsibility of the lessor, several factors can be add to the cost of a lease. These include any guarantees made by the lessee to the lessor about the residual value of the leased property at the end of the lease as well as any payments for non-renewal of the lease. Once these are factored in, a reasonable present value can be assigned to the lease for accounting purposes.

Accounting for minimum lease payments differs from the perspectives of the lessee and lessor. To learn more about this subject, read the original document available from the FASB.

  1. Capitalized Cost Reduction

    Any upfront payment that reduces the cost of financing. Capitalized ...
  2. Lease Payments

    A line item under long-term debt on a balance sheet that indicates ...
  3. Financial Accounting Standards ...

    A seven-member independent board consisting of accounting professionals ...
  4. Lessor

    The owner of an asset that is leased under an agreement to the ...
  5. Lessee

    The person who rents land or property from a lessor. The lessee ...
  6. Lease

    A legal document outlining the terms under which one party agrees ...
Related Articles
  1. Retirement

    Should You Buy Property On Leased Land?

    Find out what to consider before investing in a leased-land property.
  2. Home & Auto

    Rental Properties: Cash Cow Or Money Pit?

    Create a valuation system to forecast the profitability of an income-producing property.
  3. Taxes

    Tax Deductions For Rental Property Owners

    Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits.
  4. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  5. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  6. Bonds & Fixed Income

    What is an Indenture?

    An indenture is a legal and binding contract between a bond issuer and the bondholders.
  7. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  8. Investing Basics

    How To Efficiently Read An Annual Report

    Annual reports are clearly prepared without any intent to deceive or mislead investors. Still, investors should read them with a dose of skepticism.
  9. Investing Basics

    Explaining Financial Statement Analysis

    Financial statement analysis is the process of reviewing a company’s statements to gain an understanding of its financial health.
  10. Investing Basics

    How Financial Statements Are Manipulated

    Financial statement manipulation is an ongoing problem, and investors who buy stocks or bonds should be aware of its signs and implications.
  1. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  6. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  2. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  3. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  4. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  5. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the ...
Trading Center