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Capital Leases
A lease is a contract. It is an agreement that conveys to the lessee the right to the used of leased assets. A lease is a contract calling for the lessee to pay the lessor (the owner of the asset) for the use of an asset. In other words, a lease is an agreement that transfers the right to use an asset such as land, a building or equipment for a specified period of time.
An operating lease is short relative to the useful life of the asset being leased. An operating lease is commonly used to acquire equipment on a relatively short-term basis. Capital leases give the lessee the benefits as well as the drawbacks of ownership. Capital leases are classified as assets of the lessee, and the leased assets may be depreciated. Payment obligations under capital leases are classified for accounting purposes as an installment purchase. Title to the leased asset typically vests with the lessee at the expiration of the lease.
Copyright 2010 by Michael C. Dennis. All Rights Reserved.