In Amazon's most recent annual report it states, "Property and equipment are stated at cost less accumulated depreciation and amortization." The incentives that Amazon receives from their property and equipment vendors are recorded as a reduction to their costs. The Depreciation and amortization expense is classified within the corresponding operating expense categories on our consolidated statements of operations. Amazon categorizes leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that allow Amazon to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in "Property and equipment, net.

When Amazon uses capital leases to acquire PPT, it records these transactions as an increase in operating cash inflows. This is because capital lease payments are treated as operating expenses and are deducted from the net income in the cash flow statement. As a result, it appears as if Amazon is generating more cash from its operations. Although leases are a form of financing, they spread the cost of acquiring PPT over a duration of time. Because of this, the actual cost of PPT is not immediately recognized as an expense on the income statement. By treating these capital lease payments as operating cash flows, Amazon's metrics like operating cash flow, can be artificially boosted. Which can create the perception of a healthier financial position than what would be the case if they were reported as a debt?

Reference

Amazon. (2022). Amazon Annual Report 2022. https://safe.menlosecurity.com/doc/docview/viewer/docN5F7035966D7996dc54aa235b1b5ddce0afd50e8145e0fa7207c3ca925427809b17ba7f4df5a9

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In Amazons annual report for 2022 its noted that property and equipment are reported at cost less ac... View the full answer