Operating leases are a type of accounting used to account for lease payments over the term of a lease. They’re attractive to companies because they allow them to reduce their long-term borrowing costs and minimize their financial risk.
At its most basic, operating lease accounting requires companies to recognize the cost of leasing a property, or piece of equipment as an expense on their income statement. This means that the total cost of the leased property will be spread out over the life of the lease agreement, instead of being lumped into one large payment at the start.
In order to properly manage their finances and maximize their profits, companies who use operating leases should track their leased assets in separate accounts so they can better monitor any changes in the lease agreement or deals made with the lessor. Doing this will ensure that timely payments are always made and obligations are met.