Managers have an incentive to have leases classified as operating rather than financial from a financial ratio point of view.

Question

Quizplus · Accepted Answer

Classifying leases as operating rather than financial can make a company's financial ratios appear more favorable (e.g., higher current ratio, lower debt-to-equity ratio) because operating leases do not require the recognition of lease assets and liabilities on the balance sheet to the same extent as financial leases.

Managers Have an Incentive to Have Leases Classified as Operating