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

question 79

True/False

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

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Definitions:

Operating Expenses

Costs incurred in the day-to-day operations of a business, such as rent, utilities, and salaries, excluding the cost of goods sold.

Gross Profit

The difference between sales revenue and the cost of goods sold, indicating the margin earned before accounting for operating expenses.

Sales

Transactions where goods or services are provided in exchange for payment.

Accounting Cycle

The process of recording and processing all financial transactions of a company, from when the transaction occurs, to its inclusion in the financial statements.