synthetic lease

Synthetic Lease

An operating lease that is structured in a way so that it is not recorded as a liability on the balance sheet. Instead, it is considered to be an expense on the income statement.

Notes:

Basically, a synthetic lease allows a company to control real estate without being required to show the real estate as an asset on the financial statements

See also: Lease, Leaseback

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Synthetic Lease

When a company creates a special-purpose entity to arrange for a loan to purchase property, and then leases the property from the entity.The synthetic lease therefore keeps the loan off the company's balance sheet, while the company provides enough income to the special-purpose entity to cover the interest rate on the loan.

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synthetic lease

A financing method that confers certain aspects of ownership to the lessee, who, for accounting purposes, treats the arrangement as an operating lease. Neither the asset nor the lease is included on the lessee's balance sheet. A synthetic lease is a type of off-balance-sheet financing that results in a company understating its financial obligations.