Off-balance sheet, or incognito leverage, usually means an asset or debt or financing activity not on the company's balance sheet. Total return swaps are an example of an off-balance sheet item. Some companies may have significant amounts of off-balance sheet assets and liabilities.

What are off-balance sheets?

Off-balance sheet transactions are assets or liabilities that are not booked on the balance sheet, but deferred or contingent. They allow a party to have the benefit of an asset while transferring its liabilities to another party.

What is the difference between on and off-balance sheet?

Put simply, on-balance sheet items are items that are recorded on a company's balance sheet. ... Off-balance sheet items, however, are not considered assets or liabilities as they are owned or claimed by an external source, and do not affect the financial position of the business.