What Is Capital Lease?
A capital lease is a contract entitling a company to the temporary use of an asset for a fixed length of time and has the economic characteristics of asset ownership for accounting purposes.
KEY Points
- A capital lease is a contract entitling a company to the temporary use of an asset
- A capital lease is considered a purchase of an asset, while an operating lease is handled as a true lease under generally accepted accounting principles (GAAP).
- Under a capital lease, the leased asset is treated for accounting purposes as if it were actually owned by the lessee and is recorded on the balance sheet as such.
- An operating lease does not grant any ownership-like rights to the leased asset, and is treated differently in accounting terms.