Leasing equipment is a common alternative to purchase. Of the two kinds of leases – capital leases and operating leases – each is used for different purposes and results in differing treatment on the accounting books of a business.

Capital Leases

• Capital leases are used for long-term leases and for items that not become technologically obsolete, such as many kinds of machinery.
• Capital leases give the lessee (the person who is leasing) the benefits and drawbacks of ownership, so they are considered as assets, and they may be depreciated.
• These leases are considered as debts of the lessee.

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