Since operating leases result in the receipt of services from an asset without increasing the assets or liabilities on a firm's balance sheet, leasing may result in misleading financial ratios.

Question

Quizplus · Accepted Answer

Operating leases are off-balance sheet transactions, which means they do not increase the assets or liabilities on a firm's balance sheet. This can result in an understated debt-to-equity ratio, return on assets ratio, and other financial ratios, which can be misleading for investors and creditors. Therefore, option A is correct.

Since Operating Leases Result in the Receipt of Services from an Asset