Recall: An operating lease, on the other hand, results in the fundamental rights and responsibilities of ownership being retained by the lessor; the lessee gets to use the asset on a temporary basis.
We'll modify the example we looked at previously. What happens if the lease arrangement no longer meets the criteria for a finance/sales-type lease?
From the lessee's perspective, the initial accounting - at the outset of the lease - is the same (compare the entries below to what we did previously). But, the lessor - because it is no longer transferring control of the asset to the lessee - does NOT record an entry at the beginning of the lease.