Which of the following best describes a true lease?

A true lease is characterized by the aspect of rental agreements that do not transfer ownership of the leased item at the end of the lease term. This understanding is essential in distinguishing leasing transactions from other types of agreements, particularly those that lead to ownership.

In a true lease, the lessee pays for the right to use the equipment or property for a specified period while the lessor retains ownership. This arrangement allows businesses to use assets without the financial burden of purchasing them outright, offering flexibility and preserving cash flow. Since the lessee does not gain ownership, the lessor assumes the risk of residual value at the end of the lease.

This definition aligns perfectly with the characteristics of a true lease, distinguishing it from options that imply ownership transfer or agreements with a valid right to purchase, which would indicate a different arrangement, such as an installment sale or lease-purchase agreement.