Off-Balance Sheet Financing (OBSF)

Off-Balance Sheet Financing is used to refer to certain types of accounting transactions with no liabilities.

The financial obligations from Obsf are recorded as operating expenses. It is applied for structuring debts, sale of assets, guarantees, and other activities where the items are not included on the balance sheet of the firm.

It was used in tenancy reference for operating lease agreements or in commercial investment property valuation methods. Historically, lessees were not required to capitalize or record the leased asset and the liability arising out of it.

In conditions, when the agreement did not meet the criteria as per capital lease classification (under ASC 840), it remained off the balance sheet. 

Payments for the operating lease were recorded as operating expenses and the future obligations were mentioned in the footnotes of the company’s financial statements.

Although such transactions created confusion, it was standard practice under the U.S. GAAP to use it in all operating leased assets.

The current standards require comprehensive recognition of all types of such deals where some lease assets or obligations can be excluded from the balance sheet.