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[quote user="schlimm"] Under Heineman, the CNW completely replaced its old cars by the early 1960's with the new bi-level fleet.  As I recall, they were purchased through a Railway Equipment Trust, so the lease payments were probably included in the operating expenses.  sam1 would probably be better able to make sense of that, however. [/quote] In the case of an equipment trust certificate, the railroad buys the equipment, but it transfers the title to a financial intermediary (bank). The railroad usually has an equity position in it, i.e. 20 per cent of the cost of the equipment. The bank sells trust certificates to investors to finance the equipment; leases it to the railroad; and receives principal and interest payments to cover the balance owed on the equipment over the life of the trust. These payments flow through the income stream of the railroad.  The other major leasing options, from an accounting point of view, would be operating leases vs capital leases. In both cases the cost of the lease (principal and interest) flow through the income statement, but the timing is different. In addition, there are balance sheet (asset, liabilities, ownership, etc.) issues associated with capital leases vs. operating leases that would take considerable space to cover. Ultimately, all the costs of a business flow through the income statement. As a general rule, operating expenses flow through the income statement during the period in which they are incurred.  Capital items, i.e. plant, equipment, etc., are depreciated over time and, thus, the cost of these items, unless they are written off, flow through the income statement.  As one might imagine, there are exceptions.
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