Explaination of off balance sheet financing


Off-balance-sheet financing is a technique that allows a corporation to move the value of an asset off its balance sheet, thereby freeing up the capital previously locked-up in that asset. In highly competitive industries, this capital is better utilized in other areas where it can earn a higher rate of return. Off-balance sheet financing (OBSF) is a form of financing in which large capital expenditures are kept off of a company's balance sheet through various classification methods. more Operating Lease... Off-balance sheet financing is an accepted accounting method for recording assets and liabilities so they don't show up on the balance sheet. Why would we want to do that? Definition of off-balance-sheet financing: Financing from sources other than debt and equity offerings, such as joint ventures, R&D partnerships,... Home Articles Types of Off-Balance-Sheet Financing M any economic transactions and events are not recognized in the financial statements because they do not qualify as accounting assets or transactions under GAAP standards. Examples of off-balance-sheet financing include joint ventures, research and development partnerships, and operating leases (rather than purchases of capital equipment), where the asset itself is kept on the lessor’s balance sheet, and the lessee reports only the required rental expense for use of the asset. Off-balance sheet (OBS), or incognito leverage, usually means an asset or debt or financing activity not on the company's balance sheet. Total return swaps are an example of an off-balance sheet item.