Handle Leasing of Products or Equipment

How to Handle Leasing of Products or Equipment

When your company leases equipment to a customer and charges a monthly rental fee, the rental collected is generally treated as Rental or Leasing Income.

Create a Service Item for Monthly Rental

1. In the Inventory/Items setup, create a new item as a Service Item.
2. Example:
3. Item Code: EQUIP-RENTAL
4. Description: Equipment Monthly Rental
5. Item Type: Service
6. The Sales Account should be linked to an income account such as:
   1. Equipment Rental Income
   2. Leasing Income
   3. Rental Income

Therefore, the monthly rental income is recorded as another source of business income and is not normally grouped under Cost of Goods Sold (COGS).

Issue a Sales Invoice for the Monthly Rental

1. Each month, issue a Sales Invoice to the customer using the Equipment Monthly Rental service item.

Example:

Equipment Monthly Rental – July 2026 $1,000.00

The accounting entry will generally be:

Debit: Accounts Receivable

Credit: Equipment Rental Income

GST should be applied where applicable.

Treatment of the Equipment

1. If the equipment continues to belong to your company and is only leased to the customer, the equipment is still an asset of your company.
2. It should not be treated as a normal sale of inventory to the customer.
3. Where applicable, the equipment may be classified as rental equipment or a fixed asset and depreciation should be recorded according to your company's accounting policy.

Summary

1. Monthly leasing fee → Service Item
2. Sales Account → Rental/Leasing Income
3. Equipment → Remains company's asset
4. Monthly rental → Not a sale of inventory