What does the deficiency balance in leasing refer to?

The deficiency balance in leasing specifically refers to the remaining owed amount after the repossession and sale of the asset. When a lessee defaults on a lease agreement and the leased asset is repossessed, the lessor will sell the asset to recover some of the losses incurred. However, if the sale of the asset does not cover the outstanding balance of the lease payments, the remaining amount that is still owed by the lessee becomes the deficiency balance. This is a crucial concept in leasing to understand how potential losses are computed and what obligations the lessee may have after the asset has been sold.

The other options do not accurately reflect the definition of deficiency balance. The amount paid in excess of the lease value pertains to overpayments rather than a deficiency. The residual value is an estimate of what the asset will be worth at the end of the lease and does not indicate a balance owed. Lastly, fees associated with canceling a lease are related to termination costs, independent from any deficiency that may arise if the asset is sold following a repossession. Thus, the correct understanding of the deficiency balance is essential for both lessors and lessees in managing their financial responsibilities under a leasing agreement.