Operating Lease is a contract that allows for using an asset, but doesn’t convey rights of ownership from the asset. An operating lease isn’t capitalized; it is accounted for to be a rental expense in what is referred to as “off balance linen financing. ” For lessor, the asset getting leased is accounted for as a possible asset and is depreciated therefore. Operating leases have tax incentives and do not result in possessions or liabilities being recorded around the lessee’s balance linen, which can improve the lessee’s financial ratios.
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