capital lease

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Capital lease

A lease obligation that has to be capitalized on the balance sheet.

Capital Lease

A long-term lease in which the lessee must record the leased item as an asset on his/her balance sheet and record the present value of the lease payments as debt. Additionally, the lessor must record the lease as a sale on his/her own balance sheet. A capital lease may last for several years and is not callable. It is treated as a sale for tax purposes. It is also called a financial lease.

capital lease

The long-term lease of a capital asset. To the lessee, a capital lease is the same as owning the asset. Accounting rules require that the leased asset and the present value of the lease payments be recorded on the lessee's balance sheet. For the lessor, a capital lease is treated as a sale of the asset. Also called financial lease.
References in periodicals archive ?
To address concerns regarding the impact that a transition from operating to capital lease accounting would have on the resulting expense recognition pattern, the proposal provides two types of capital leases, each with a different expense recognition pattern.
As part of the amended and restated credit agreement, the company can raise its capital leasing capacity from USD30m to USD75m, supporting its planned conversion of up to USD50m of existing operating leases into capital leases.
Under capital leases, a company records the lease rent obligation as debt and a related lease asset.
In return DHL will assume financial responsibility, retroactive to 31 January 2009, for ABX Air's obligations under capital leases for five Boeing 767-200PC aircraft that are currently used on DHL's US network.
The auditor also recommended that the county develop a policy of using capital leases that reflect the acquisition and incurrence of obligations when entering into long-term, build-to-suit leases and ensure that the proper documents are obtained when leasing buildings.
6 Off-Balance-Sheet Transactions -- Determine if there are operating leases that should be capital leases or capital leases that should be operating leases.
The current rule prohibits capital leases and permits operating leases made under normal terms and conditions.
Capital leases are agreements that transfer the risks of ownership to the tenant without transferring the title and under the conditions in which the tenant acts in most respects as the "owner" of the property.
Since an operating lease is not debt, and it tends to carry lower monthly payments than capital leases, it is sometimes the only way a firm can get the equipment it needs.
The types of financial services used by small businesses can be grouped into the following broad categories: (1) liquid asset services, which are checking accounts and savings-type accounts, (2) credit lines, loans, and capital leases, which are lines of credit, mortgages, motor vehicle loans, equipment loans, capital leases, and miscellaneous loans, and (3) financial management services, which are transaction services, cash management services, credit-related services, brokerage services, and trust and pension services.
Last month we discussed the difference between operating leases and capital leases.
Certain lease agreements that are treated as operating leases for tax purposes are classified by lessee as capital leases for financial reporting purposes.