Answer: Lower depreciation expense compared to a finance lease.

Under US GAAP, a lessee with an operating lease recognizes a single lease expense, which includes both the interest and amortization components, reported as an operating expense on the income statement. Unlike a finance lease, no separate depreciation expense is recorded for the right-of-use asset. This results in lower depreciation expense for operating leases compared to finance leases. The financing cash outflow for operating leases is also lower, as the entire lease payment is reported under operating activities, not financing activities.

Author: LeetQuiz Editorial Team