rental of property between the lessee and lessor for a fee. An operating lease does not meet the criteria for a capital lease. An example is renting of an apartment or automobile. The lessee debits rental expense and credits cash. Rental expense should be recognized on a straight-line basis, unless another systematic and rational basis is more representative of the time pattern in which benefit use is derived. Thelessee shows nothing about the lease on the balance sheet. Lessee footnote disclosure includes future minimum lease payments in aggregate and for each of the five succeeding fiscal years, contingent rentals, and sublease rentals. The lessor, upon receipt of rental payments, debits cash and credits rental revenue. The lessor also records depreciation expense on the leased item and any expenses related to the leased property, such as maintenance expense. Normal accrual basis accounting techniques are followed for the recognition of income and expense. The lessor reports on his balance sheet the leased asset less accumulated depreciation. Footnote disclosure by the lessor includes the cost of property on lease or held for leasing by major class, minimum future rentals in the aggregate and for each of the five succeeding years, and contingent rentals.
lease written for a shorter period than the economic life of the leased asset. These leases ordinarily are written by equipment manufacturers, who are expected to take back the equipment and re-lease it to other users. Both commercial banks and finance companies write operating leases. Operating leases are cancelable leases, meaning the equipment can be returned at any time if it becomes obsolete or no longer is needed.
type of lease, normally involving equipment, whereby the contract is written for considerably less than the life of the equipment and the lessor handles all maintenance and servicing; also called service lease. Operating leases are the opposite of capital lease, where the lessee acquires essentially all the economic benefits and risks of ownership.
type of lease, normally involving equipment, whereby the contract is written for considerably less than the life of the equipment and the lessor handles all maintenance and servicing; also called service lease. Operating leases are the opposite of capital leases, where the lessee acquires essentially all the economic benefits and risks of ownership. Common examples of equipment financed with operating leases are office copiers, computers, automobiles, and trucks. Most operating leases are cancelable, meaning the lessee can return the equipment if it becomes obsolete or is no longer needed.
a lease between the lessee and the sublessee who actually occupies and uses the property.
