How Sale-leaseback Accounting Works (With Examples). Sale-leaseback arrangements can be appealing to companies trying to find a liquidity increase or a technique to manage their financial obligation ratio. However, for accountants, they can also be complicated to examine and figure out whether a sale has actually happened. So how exactly does sale-leaseback accounting work? This post covers whatever you need to learn about these transactions, including the meaning of sale-leaseback, benefits and drawbacks, and accounting examples. What is a sale-leaseback? A sale-leaseback (a.k.a. sale and leaseback) transaction takes place when the owner of a possession sells it, then leases it back through a long-lasting lease. The initial owner ends up being the seller-lessee, and the buyer of the property ends up being the buyer-lessor. While this deal doesn't impact the functional usage of the asset by the seller-lessee, it does have various accounting results for both celebrations. The seller-lessee can continue using the property, however legal ownership is moved to the buyer-lessor. Discover more about the duties of lessors and lessees. What is the purpose of a sale-leaseback? The most typical factors to enter a sale-leaseback arrangement are to raise capital, enhance the balance sheet, or get tax benefits. The seller-lessee is normally looking for to release the cash stored in the worth of a residential or commercial property or possession for other functions however does not wish to jeopardize their ability to utilize the possession. Purchasers who get in into these contracts are usually institutional financiers, renting companies, or finance companies pursuing an offer that has a secure return as the buyer-lessor. Sale-leasebacks are commonly seen in markets with high-cost fixed assets, such as construction, transport, realty, and aerospace. How does a sale-leaseback work?