Features of Operating Lease

Lease can be defined as a contract where one party which uses the asset agrees to pay rent for the use of that asset to the proprietor of that asset. In accounting terms person who uses the asset is called the lessee and owner of asset is called lessor. An example of operating lease would be when a person is starting his or her own manufacturing business but he or she does not have enough cash to buy machinery then the person will take machinery on operating lease. Operating lease is that lease which allows lessee to use the assets for short period of time. Given below are some of the features of operating lease –

  1. Operating lease is a short term arrangement for the use of asset between the lessee and the owner of the asset.
  2. Various costs related to that asset like maintenance, taxes etc…. are paid by the owner of the asset.
  3. The term of operating lease is always shorter than the economic life of that asset.
  4. The lessee can cancel the operating lease prior to the end date of the operating lease.
  5. The terms related to an operating lease can vary significantly depending upon the agreement between the lessee and the owner of the asset.
  6. The rent which is paid by the lessee for the duration of the operating lease is lower than the cost of asset.
2 comments… add one
  • bright michael

    what are the differences betwen operating lease contract and financial lease contract?

    • Vinish

      I have explained that in this post

Leave a Comment


Related pages


market skimming exampleslimitation of managerial economicsindustrialization disadvantagesunsystematic risktypes of demographic segmentationaum full formexplain autocratic leadershipfluctuation defwhat is fund flow and cash flowwhat is endorseetds full formwhat is ecs in bankingdisadvantages of cost based pricingjit disadvantagescrossing of chequesdrawbacks of advertisingforex direct quoteurbanization disadvantagesdefine unclaimedadvantages of the mixed economypenetration marketing strategytraditional economy meaningbills receivable accounting entriesmonopolistic economydiscounted cash flow advantages and disadvantagesloan accounting journal entriesaccounting for unearned revenueplanned economy examplesdifferent types of liquidity ratiosnestle advantages and disadvantagesquota and tariffcarriage inward meaningadvantages of stable dividend policymethods to calculate national incomedu pont identity formulaunitary price elasticity of demandcapitalism socialism and mixed economypricing strategies advantages and disadvantagesmeaning of bill discountingdisadvantages of acquisitionscalculating net worth of a companyexamples of current liabilitiescharacteristic of monopolistic competitionwhat are the differences between socialism and capitalismexamples of physical assetsdurable goods and nondurable goodsinferior goods economicscapitalist economy advantagesmarginal costing advantagesdefinition of centrally planned economyexamples of veblen goodsprepaid expense meaningtraditional economy advantages and disadvantagesmixed economic system advantages and disadvantagesexamples of unsystematic riskassumptions of capm explainedofs stockrent prepaid journal entryfmcg fullformskimming pricing strategy advantages and disadvantagesoperating cycle in financegaar meaningassumptions of capmexamples inferior goodsstable dividend policy definitionsimilarities between public finance and private financemixed economy advantages disadvantagesdisadvantages of stocksmerits of industrializationconcept of materiality in accountingwhat is a debenture loanmaximum market skimmingadvantages of perfectly competitive marketexamples of horizontal mergersunitary elastic examplenestle advantages and disadvantagesdisadvantages of deficit financingaccounting entries for prepaid expensesmeaning of fixed capital