Leasing is a unique financing option for the use of certain assets. In a lease transaction the asset owner (the leasor) agrees to lease, or rent, it to another party (the leasee) for its exclusive use for a specific time at a specific cost. It’s directly comparable to leasing an apartment or office: the leasee enters a contract to use the space for a predetermined number of months or years at an agreed upon monthly cost.

When a leasee is using someone else’s asset, the leasee has no ownership or equity in the asset; therefore, it’s not reflected on the leasee’s balance sheet as an asset, nor is the lease obligation reflected as a liability (with the exception discussed below). The cost of the lease payment made is charged as ...

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