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Glossary

Common Trans Advantage Terms
Amortization
Amortization is a schedule that separates payments into principal and interest components.

Capital Lease
From a financial reporting perspective, a lease that has the characteristics of a purchase agreement, and also meets certain criteria established by Financial Accounting Standards Board Statement No. 13 (FASB 13). Such a lease is required to be shown as an asset and as a related obligation on the lessee's balance sheet.

Collateral
A contract's collateral may consist of vehicles or other tangible assets such as containers or cars that are pledged to a lending institution to minimize the risk of default.

Depreciation
A means for a firm to recover the cost of purchased assets, over time, through periodic deductions or offsets to income. Depreciation is used for both financial reporting and taxes. It is considered a tax benefit because depreciation deductions reduce taxable income, thereby lowering the firm's tax liability.

Early Termination
Early termination occurs when the customer ends the contract prior to the end of the contract. Frequently, early termination fees are charged to the customer.

End-of-term Options
End-of-term options for a lease includes the purchase of equipment, renewal of the lease, or the return of the equipment to the lessor based upon provisions in the contract.

Fair Market Value
The fair market value price of equipment is the amount of money that a vehicle would sell for in an arms-length transaction between a willing buyer and a willing seller.

FASB 13
Financial Accounting Standards Board Statement No. 13, "Accounting for Leases." FASB 13, along with its various amendments and interpretations, specifies the proper classification, accounting and reporting of leases by lessors and lessees.

Funding Source
An entity, such as a bank or other lending institution, that provides the money to pay for financed vehicles.

Guaranteed Residual Value
A guaranteed residual value is a guaranteed amount of money that the leased equipment will be worth at the end of the lease term. The guarantor agrees to reimburse the lessor for any deficiency if the leased equipment is worth less than the guaranteed residual value.

Lease
A contract in which an owner of equipment (lessor) conveys the right to use the equipment to another party (the lessee).

Lease Payments
A lease payment is also called a rental. It is the amount the lessee pays the lessor in return for using the leased equipment.

Lease Renewal Option
A lease renewal option in a lease agreement allows the lessee to extend the lease beyond the end of the initial lease term in exchange for renewal payments.

Lessee
The lessee (customer) is the user of the equipment that is leased.

Lessor
The owner of the equipment that is leased to a lessee (customer).

Master Lease
A "master" agreement for a lease allows the lessee (customer) to later obtain additional leased equipment under the same basic lease terms and conditions agreed to under the original Master Lease Agreement.

Off Balance Sheet Financing
A form of financing that may not need to be reported on a firm's balance sheet.

Operating Lease
From a financial reporting perspective, a lease that has the characteristics of a usage agreement and also meets certain criteria established by the FASB. It is not required to show such a lease on the balance sheet of the lessee.

Payoff
A payoff is the amount of money that the lessee must pay the lessor prior to the end of the normal lease term.

Refundable Security Deposit
An amount paid by the lessee to the lessor as security for fulfillment of all obligations in the lease agreement. The deposit is subsequently refunded to the lessee once all obligations have been satisfied.

Renewal Option
At the end of the initial lease term, this option allows the lessee to extend the lease term for an additional period of time in exchange for lease renewal payments.

Residual Value
The expected or actual value of leased equipment at the end, or termination, of the lease.

Schedule A
A lease document that provides a list of equipment that is subject to the terms and provisions of the Master lease. The schedule also reflects the lease term, payment, commencement date, and the residual amount.

Skip-payment Lease
A lease that has scheduled reduced payments during the term of the contract. This type of contract is often used in seasonal industries.

Sublease
A transaction in which leased property is re-leased by the original lessee to a third party while the lease agreement remains in effect between the two original parties.

UCC Financing Statement
A document, under the UCC, filed with the county (and sometimes the secretary of state) to provide public notice of the lessor's security interest in the leased equipment.

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