Capital Lease
A finance lease is a contract where a leasing company (the lessor or owner) buys the asset for the user (usually called the lessee) and rents it to them for an agreed period.
- Also known as a finance lease
- Considered a form of financing
- Often lasts for the lifetime of the asset
- The lessee makes rental payments that cover the original cost of the asset
- Don't confuse with an operating lease - these are different!
- The capital lease requires a renter to book assets and liabilities associated with the lease if the rental contract meets specific requirements.
- Is considered a purchase of an asset for GAAP.
- A finance lease is defined in Statement of Standard Accounting Practice 21 as a lease that transfers.May 1, 2013