Drag and Drop Question A company uses Dynamics 365 Finance. The company adheres to United States Generally Accepted Accounting Principles (US GAAP). You need to create a lease liability amortization…

The correct answer is Right-of-use asset; Operating lease liability. Operating Lease Liability Amortization in D365 Finance (US GAAP / ASC 842) Background Under ASC 842, an operating lease is recognized on the balance sheet with two paired accounts at commencement: A Right-of-Use (ROU) asset (what you control) An Operating lease liability (what…

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Question

Drag and Drop Question A company uses Dynamics 365 Finance. The company adheres to United States Generally Accepted Accounting Principles (US GAAP). You need to create a lease liability amortization transaction for an operating lease. How should you complete the transaction? To answer, move the appropriate main accounts to the correct accounting transaction types. You may use each main account once, more than once, or not at all. You may need to move the split bar between panes or scroll to view content. NOTE: Each correct selection is worth one point. Answer:

Exhibit

Answer Area

Drag items

Lease expenseVendor liabilityRight-of-use assetOperating lease liability

Correct arrangement

Right-of-use asset
Operating lease liability

Explanation

Operating Lease Liability Amortization in D365 Finance (US GAAP / ASC 842)

Background

Under ASC 842, an operating lease is recognized on the balance sheet with two paired accounts at commencement:

A Right-of-Use (ROU) asset (what you control)
An Operating lease liability (what you owe)

Over the lease term, both balances must be systematically reduced. The "lease liability amortization" transaction is the periodic entry that does this.

Why These Two Accounts

The core journal entry for operating lease liability amortization in D365 Finance:

Role	Account
Debit (liability reduced)	Operating lease liability
Credit (asset reduced)	Right-of-use asset

Both accounts were created together at lease inception; they are reduced together through amortization. This is what the drag-and-drop is testing.

Placement-by-Placement Reasoning

1. Right-of-Use Asset The ROU asset is credited (reduced) as the lease "expires" over time. For operating leases, the ROU asset functions as the plug account - it absorbs the difference between the straight-line lease expense and the interest accrual, ensuring straight-line total expense recognition. It belongs in this transaction because it is the asset side of the amortization entry.

2. Operating Lease Liability The lease liability is debited (reduced) as payments are made and the obligation decreases. This is the liability side of the amortization. Amortizing it is what the transaction is literally named for - it must appear here.

Why the Other Options Don't Belong Here

Lease expense - Recognized in a separate periodic entry (Dr. Lease expense / Cr. Accrued liability or cash). It is not part of the liability amortization transaction itself.

Vendor liability - Belongs to accounts payable/procurement workflows. It has no role in lease accounting entries under ASC 842.

Common Mistakes

Confusing operating vs. finance leases: Finance leases split the expense into interest + amortization, using an interest expense account. Operating leases use straight-line lease expense instead - don't substitute those accounts here.
Putting lease expense in the amortization entry: The straight-line expense is recorded separately. The amortization transaction only touches the balance sheet accounts (ROU asset + liability).
Using vendor liability: This is a classic distractor. Lease liability is not a vendor/AP liability - it is a separate long-term obligation class under ASC 842.

Topics

#asset leasing#operating lease#lease amortization#US GAAP

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