Operating Leases
Operating Lease classification is determined by the criteria set forth in FASB 13. Operating leases are accounted for by lessees as off-balance-sheet instruments. No asset is recorded, and no corresponding liability is recorded either.
The lease is recorded in the notes to the financial statements, and for the purpose of financial and operating efficiency ratio analyses, performance is improved by virtue of the lack of recognition of the transaction as a debt instrument.
Off balance sheet treatment is advantageous for companies since it will improve liquidity ratios, reduce debt profiles and enhance asset utilization ratios such as return on assets (ROA).
Some examples of leases that may receive off balance sheet treatment are:
Operating Lease
True Lease
TRAC Lease
Full Service Lease
First Amendment Lease
