EFFECT OF CAPITAL AND OPERATING LEASES ON THE FINAN- CIAL STATEMENTS. All leases for financial reporting purposes are treated as either capital (finance) leases or operating leases. The effects of the two reporting techniques on the financial statements differ substantially. From the perspective of the lessee, prepare a chart that lists the line items reported on the (a) income statement, (b) balance sheet, and (c) statement of cash flows under each reporting technique.