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An operating lease is usually for a short time period. It is normally “a contractual arrangement whereby the lessee agree to make periodic payments to the leaser, often for 5 or fewer years, to obtain an asset’s services” (Horngren et al., 2003, p. 237). The catch is that most times after they end of the lease, the lessee does not own the equipment. This also works well for a company’s balance sheets, because it does not have to be listed as a liability. There are usually a few options available to the lessee. He/she can “either renew the lease, buy the equipment for its value at the end of the lease or (lease with option to buy), or acquire other equipment” (ESP Energy, 2003).
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