Quick Finance Tip - Following A Lease Through The Financial Statements For A Lessee

​For a finance lease the Asset and the Debt Payable are reported on the Balance Sheet. Interest and depreciation expenses are effectively recorded in the Income Statement. For an operating lease, no Assets or Liabilities are recorded, and expenses are recorded in the Income Statement. For the Cash Flow Statement, operating leases are shown as Operating Cash Flow, as for finance leases, portion of the payments that reduces the lease liability are Financing Cash Flow.
 
Do note, typically operating leases will help show higher profits and returns in early years, with stronger solvency positions, relative to finance leases. However, companies that are reporting finance leases will show higher Operating Cash Flow, driven by the portion of the payment which reduces the liability (which goes to financing activity).