This video discusses the difference between a sales-type lease and an operating lease from the lessor’ perspective. The main difference is that with a sales-type lease, the lessor treats the lease similar to a sale, in that it recognizes sales revenue and a receivable, and recognizes cost of goods sold and reduces its inventory. Then the lessor recognizes interest revenue that accrues on the lease receivable over time (using the effective interest method). With an operating lease, the lessor does not use the effective interest method but instead recognizes lease revenue each period of the lease. The lessor does not remove the leased asset from its books, but depreciates the asset over its economic life.