OPERATING LEASE

From a financial reporting perspective- a lease that has the characteristics of a usage agreement and also meets certain criteria established by the FASB. Such a lease is not required to be shown on the balance sheet of the lessee. The term also is used to refer to leases in which the lessor has taken a significant residual position in the lease pricing and- therefore- must salvage the equipment for a certain value at the end of the lease term in order to earn its rate of return.