What characterizes an operating lease?

An operating lease is characterized by the absence of ownership transfer at the end of the lease term. In this type of lease, the lessee has the right to use an asset for a specific period, but ownership of the asset remains with the lessor throughout and after the lease period.

This arrangement typically involves shorter lease terms relative to the useful life of the asset, meaning that the lessee can use the asset without the long-term commitment or responsibility that comes with ownership. Since the lease does not result in asset ownership or transfer, the lessee often records it differently in financial statements, allowing for potential tax benefits and keeping the asset off the balance sheet.

The other alternatives describe characteristics that are more typical of capital leases or finance leases, where ownership rights and economic benefits are transferred to the lessee, which is not the case in an operating lease.