Under a capital lease, which accounting element reflects the cost of the leased asset over time?

• A. Amortization charges
• B. Interest income
• C. Revenue
• D. Cash outlay only

Answer: (A)

Under a capital lease, the lessee records the asset and a corresponding lease liability on the balance sheet. Over time, the asset’s cost is allocated to expense through amortization (depreciation), which shows how much of the asset’s value is used up in each period. The lease payments themselves are divided into interest expense (the financing cost) and a reduction of the lease liability, not the asset’s cost recognition. Revenue and cash outlay alone don’t reflect the asset’s cost over time; cash outlay includes both principal and interest, while amortization captures the gradual consumption of the asset’s value. So the ongoing charge that represents the cost of the leased asset over time is the amortization expense.