What is the primary effect of lease expenses on the income statement?

The primary effect of lease expenses on the income statement is that all lease expenses are reported on the income statement. This means that regardless of whether the lease is classified as an operating lease or a finance lease, the associated expenses must be recognized as they are incurred. The inclusion of lease expenses helps provide a clear picture of a company's operational costs and financial obligations, which is essential for evaluating overall profitability.

When lease payments are made, they typically reduce the operational income because they are treated as operational expenses. This affects a company’s earnings before interest and taxes (EBIT) directly. Accurate reporting of these expenses ensures that stakeholders such as investors and creditors can assess the company's financial health and performance effectively. Reporting all lease expenses aids in maintaining transparency in financial disclosures and achieves compliance with accounting standards.

Other statements regarding lease expenses present conditions that do not reflect the standard accounting treatment for leases. For example, stating that lease expenses are only reported above a certain threshold does not align with the obligations that companies have to report all expenses associated with their leases.