Capital Lease

Parent term

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