An Operating Lease is like renting something for a few years without ever owning it.
The asset stays with the lessor (owner), and your company just pays to use it.
In D365, this type of lease is recognized on the balance sheet — the system creates a Right-of-Use (ROU) asset and a lease liability.
Example:
Your company rents an office building for 3 years at ₹1,00,000 per month.
Since it’s more than 12 months and not low in value, D365 treats it as an Operating Lease.
Each month, depreciation and interest expenses are automatically calculated and posted.
Short-Term Lease
A Short-Term Lease is any lease with a term of 12 months or less, and it doesn’t include an option to purchase or extend.
These are treated as regular operating expenses — no ROU asset or liability is created.
Example:
You lease a printer for 10 months for ₹5,000 per month.
Since the period is less than a year, D365 classifies it as a Short-Term Lease.
The monthly rent simply hits the expense account directly.
Low-Value Lease
A Low-Value Lease is based on the value of the asset itself, not the duration.
If the asset’s value is low (like a small office device or equipment), you can expense it directly, even if it’s leased for multiple years.
Example:
You lease a laptop worth ₹40,000 for 3 years.
Though the term is long, the item’s value is low, so D365 allows you to treat it as a Low-Value Lease and expense it each month instead of creating an ROU asset.
Quick Summary
| Lease Type |
Duration |
Value |
Accounting in D365 |
Example |
| Operating Lease |
Usually >12 months |
Any |
Creates ROU asset + lease liability |
Office rent for 3 years |
| Short-Term Lease |
≤12 months |
Any |
Expensed directly |
Printer for 10 months |
| Low-Value Lease |
Any |
Low |
Expensed directly |
Laptop worth ₹40,000 for 3 years |
