The distinction for the lessor between a direct-financing lease and a salestype lease is the presence or absence of a manufacturer’s or dealer’s profit (or loss):
A sales-type lease involves a manufacturer’s or dealer’s profit, and a direct-financing lease does not. The profit (or loss) to the lessor is evidenced by the difference between the fair value of the leased property at the inception of the lease and the lessor’s cost or carrying amount (book value).
Normally, sales-type leases arise when manufacturers or dealers use leasing as a means of marketing their products. For example, a computer manufacturer will lease its computer equipment (possibly through a captive) to businesses and institutions.
Direct-financing leases generally result from arrangements with lessors that are primarily engaged in financing operations (e.g., banks). However, a lessor need not be a manufacturer or dealer to recognize a profit (or loss) at the inception of a lease that requires application of sales-type lease accounting.