Operation vs. financial

iStock_000001095558SmallOperational versus financial leasing

Operational and financial leasing represents two different forms of ownership. Operational leasing means that the lessor is the owner of the equipment, has the residual value obligation on the equipment and takes it back after the lease period expires. Using financial lending products such as leasing, overdrafts and loans, the borrower is the owner of the equipment and can carry the investment over onto their own balance sheet.

For operational leasing, the value of the equipment is kept off the account's balance sheet and leasing costs are recorded in their entirety as a direct cost associated with the use of the equipment.

The equipment is recorded on the balance sheet for financial lending products and the company can administer and allocate all costs and depreciation associated with the equipment to form an accurate picture of the overall economy.

With operational leasing you get the addition of external invoice control. The lessor, who owns the equipment, pays invoices and checks that they are in accordance with the agreements. The lessee receives periodic lease invoices.