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Sales-type lease

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Definition of Sales-type lease

Sales-type Lease Image 1

Sales-type lease

An arrangement whereby a firm leases its own equipment, such as IBM leasing its own
computers, thereby competing with an independent leasing company.


Sales-type Lease

lease accounting used by a manufacturer who is also a lessor. Up-front gross
profit is recorded for the excess of the present value of the lease payments to be received across
a lease term over the cost to manufacture the leased equipment. Interest income also is recognized
on the lease receivable as it is earned over the lease term.



Related Terms:

Accounting and Auditing Enforcement Release (AAER)

Administrative proceedings or litigation releases that entail an accounting or auditing-related violation of the securities laws.


Break-even lease payment

The lease payment at which a party to a prospective lease is indifferent between
entering and not entering into the lease arrangement.


Capital lease

A lease obligation that has to be capitalized on the balance sheet.


Capital lease

A lease in which the lessee obtains some ownership rights over the asset
involved in the transaction, resulting in the recording of the asset as company property
on its general ledger.



Capital Lease

One where substantially all of the benefits and risks of ownership are transferred to the lessee. It must be reflected on the company's balance sheet as an asset and corresponding liability.


Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.


Sales-type Lease Image 2

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.


Cost of lease financing

A lease's internal rate of return.


Cost of sales

The manufacture or purchase price of goods sold in a period or the cost of providing a service.


Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.


Days' sales outstanding

Average collection period.


Direct lease

lease in which the lessor purchases new equipment from the manufacturer and leases it to the
lessee.


Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.


Double-dip lease

A cross-border lease in which the disparate rules of the lessor's and lessee's countries let
both parties be treated as the owner of the leased equipment for tax purposes.


Financial lease

Long-term, non-cancelable lease.


Financial Lease

lease in which the service provided by the lessor to the lessee is limited to financing equipment. All other responsibilities related to the possession of equipment, such as maintenance, insurance, and taxes, are borne by the lessee. A financial lease is usually noncancellable and is fully paid out amortized over its term.


Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.



Full-payout lease

See: financial lease.


Full-service lease

Also called rental lease. lease in which the lessor promises to maintain and insure the
equipment leased.


Gross sales

The total sales recorded prior to sales discounts and returns.


Lease

A long-term rental agreement, and a form of secured long-term debt.


lease

Long-term rental agreement.


Lease (Credit Insurance)

Contract granting use of real estate, equipment or other fixed assets for a specified period of time in exchange for payment. The owner or a leased property is the lessor and the user the lessee.


Lease Payment

The consideration paid by the lessee to the lessor in exchange for the use of the leased equipment/property. Payments are usually made at fixed intervals.


Lease Rate

The payment per period stated in a lease contract.


Lease Rate

The payment per period stated in a lease contract.


Leasehold improvement

This is any upgrade to leased property by a lessee that will be
usable for more than one year, and which exceeds the lessee’s capitalization limit.
It is recorded as a fixed asset and depreciated over a period no longer than the life
of the underlying lease.



Leasehold improvements

The cost of improvements made to property that the company leases.


Leveraged lease

A lease arrangement under which the lessor borrows a large proportion of the funds needed
to purchase the asset and grants the lender a lien on the assets and a pledge of the lease payments to secure the
borrowing.


Limitation on sale-and-leaseback

A bond covenant that restricts in some way a firm's ability to enter into
sale and lease-back transactions.


Litigation Release

Official SEC record of a settlement or a hearing scheduled before a civil
court judge of an alleged violation of one or more sections or rules of the securities laws. Typically,
a litigation release entails a more serious violation of the securities laws than an administrative
proceeding.


Net lease

A lease arrangement under which the lessee is responsible for all property taxes, maintenance
expenses, insurance, and other costs associated with keeping the asset in good working condition.


Net sales

Total revenue, less the cost of sales returns, allowances, and discounts.


NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)


NUMBER OF DAYS SALES IN RECEIVABLES

(also called average collection period). The number of days of net sales that are tied up in credit sales (accounts receivable) that haven’t been collected yet.


Operating lease

Short-term, cancelable lease. A type of lease in which the period of contract is less than the
life of the equipment and the lessor pays all maintenance and servicing costs.


Operating lease

The rental of an asset from a lessor, but not under terms that would
qualify it as a capital lease.


Operating Lease

One where the risks and benefits, as well as ownership, stays with the lessor.


percentage of sales models

Planning model in which sales forecasts are the driving variables and most other variables are
proportional to sales.


Price/sales ratio (PS Ratio)

Determined by dividing current stock price by revenue per share (adjusted for stock splits).
Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares
outstanding.


RATIO OF NET INCOME TO NET SALES

A ratio that shows how much net income (profit) a company made on each dollar of net sales. Here’s the formula:
(Net income) / (Net sales)


RATIO OF NET SALES TO NET INCOME

A ratio that shows how much a company had to collect in net sales to make a dollar of profit. Figure it this way:
(Net sales) / (Net income)


Rental lease

See:full-service lease.


return on sales

This ratio equals net income divided by sales revenue.


Safe harbor lease

A lease to transfer tax benefits of ownership (depreciation and debt tax shield) from the
lessee, if the lessee could not use them, to a lessor that could use them.


Sale and lease-back

Sale of an existing asset to a financial institution that then leases it back to the user.
Related: lease.


Sale and Leaseback

An agreement in which the owner of a property sells that property to a person or institution and then leases it back again for an agreed period and rental.


Sales

Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term revenue.


Sales allowance

A reduction in a price that is allowed by the seller, due to a problem
with the sold product or service.


Sales charge

The fee charged by a mutual fund when purchasing shares, usually payable as a commission to
marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It
represents the difference, if any, between the share purchase price and the share net asset value.


Sales discount

A reduction in the price of a product or service that is offered by the
seller in exchange for early payment by the buyer.


Sales discounts

A contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales.


Sales forecast

A key input to a firm's financial planning process. External sales forecasts are based on
historical experience, statistical analysis, and consideration of various macroeconomic factors.


Sales journal

A journal used to record the transactions that result in a credit to sales.


Sales mix

The mix of product/services offered by the business, each of which may be aimed at different customers, with each product/service having different prices and costs.


sales mix

the relative combination of quantities of sales of the various products that make up the total sales of a company


Sales returns

A contra account that offsets revenue. It represents the amount of sales made that were later returned.


Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.


Sales Tax

A tax levied as a percentage of retail sales.


Sales value at split-off

A cost allocation methodology that allocates joint costs to joint
products in proportion to their relative sales values at the split-off point.


sales value at split-off allocation

a method of assigning joint cost to joint products that uses the relative sales values of the products at the split-off point as the proration basis; use of this method requires that all joint products
are salable at the split-off point


True lease

A contract that qualifies as a valid lease agreement under the Internal Revenue code.


Type

The classification of an option contract as either a put or a call.


W-type bottom

A double bottom where the price or indicator chart has the appearance of a W.
See: technical analysis.



 

 

 

 

 

 

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