Which account is debited when recognizing a sale in a sale and leaseback transaction?

In a sale and leaseback transaction, when an entity sells an asset and concurrently leases it back from the buyer, the recognition of the sale leads to the debit of the Cash account. This debit reflects the cash received from the sale of the asset, which is a key component of this transaction.

When an asset is sold, the seller effectively transfers ownership to the buyer in exchange for cash. This cash inflow is recognized in the Cash account, indicating that the company has an increase in its liquid assets. The other accounts involved, such as Right of Use Asset and Lease Liability, relate more to the leasing aspect of the transaction rather than the initial sale recognition. Therefore, while the Cash account reflects the direct transaction effect, the Right of Use Asset would be recognized later once the lease is initiated.

Understanding this practice is crucial as it portrays the financial impacts of both the sale and the leaseback arrangements effectively within the financial statements.