Lessor / Lessee
The lessor is the party that provides the right to use an asset. The lessee is the party that obtains that right in exchange for consideration.
Leasing
Explanation
The two sides of a lease follow different accounting models:
• Lessee accounting (lease-in): The lessee recognizes a right-of-use asset and a lease liability for most leases. Under ASC 842, leases are classified as finance or operating leases; IFRS 16 uses a single model.
• Lessor accounting (lease-out): The lessor classifies each lease – under ASC 842 as sales-type, direct financing, or operating lease; under IFRS 16 as finance or operating lease. Depending on classification, the lessor either keeps the asset on its balance sheet or replaces it with a lease receivable.
Many companies are both: they lease office space or vehicles as lessee and lease equipment to customers as lessor. In a sublease, the same company is lessee of the head lease and lessor of the sublease.
Why It Matters
The two perspectives require different processes, data, and systems. In SAP, lessee accounting is typically handled in SAP Contract and Lease Management (CLM). Lessor accounting – especially in bundled equipment and service contracts – can be handled in SAP Revenue Accounting and Reporting (RAR).
Related Terms
ASC 842 · IFRS 16 · Sublease · Right-of-Use Asset · Net Investment in the Lease · Direct Financing Lease
Related Articles
• Lease-In and Lease-Out: Connecting SAP CLM and RAR
• Lessee Accounting under IFRS 16 / ASC 842 with SAP CLM
• Lease-Out Explained: What Lessors Need to Know under ASC 842 and IFRS 16
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