operating lease

Definition

Cancelable short-term (a period shorter than the economic life of the leased asset) lease written commonly by landlords and equipment manufacturers who expect to take back the leased asset after the lease term and re-lease it to other users. The lessor gives the lessee the exclusive right to possess and use the leased asset for a specific period and under specified conditions, but retains almost all risks and rewards of the ownership. The full amount of lease payments is charged as an expense on the lessee's income statement but no associated asset or liability (other than the liability of the accrued lease payment or rent) appears on the lessee's balance sheet. For this reason, operating leases are also called off balance-sheet financing. And, since the maintenance of the leased asset is usually the responsibility of the lessor, they are called also maintenance leases or service leases. An operating lease does not meet any of the criteria for a capital lease.