A Theoretical Foundation for Leases and Other Executory Contracts.

Abstract Executory contract data may be relevant financial information to users of published financial reports and thus the recent literature contains numerous proposals for capitalization of such contracts. In light of these proposals it is especially appropriate to consider how currently accepted asset and liability concepts accommodate leases and other executory contracts. It has been concluded that the exchange of promises and rights by independent parties upon entering into a contract constitutes an accounting transaction. This expanded notion of an accounting transaction coupled with the service potential concept of assets, yields a theoretical framework which accommodates executory contracts. Using this framework, executory contracts qualify theoretically as assets and liabilities which should be recorded in the accounts if objectively measurable.