Such leases are referred to as off-balance sheet financing due to their exclusion from the balance sheet asset and debt presentation, except for that portion of the payments that is due in the current fiscal period. Full disclosure of such transaction is typically made in the auditor's notes to the financial statements. Periodic payments are recorded as expense items on the lessee's income statement. Ownership is retained by the lessor during and after their lease term. The discounted value of a payment or stream of payments to be received in the future, taking into consideration a specific interest or discount rate.
Present value represents a series of future cash flows expressed in today's dollars.
An option given to the lessee to purchase the equipment from the lessor, usually as of a specified date. The primary difference is that the stated amount is the amount that the lessee must purchase the equipment for at term of lease. The book value that the lessor depreciates a piece of equipment down to during the lease term, typically based on an estimate of the future value, less a safety margin. A transaction that involves the sale of equipment to a leasing company and a subsequent lease of the same equipment back to the original owner who continues to use the equipment. A lease that contains a payment stream requiring the lessee to make payments only during certain periods of the year.