LEASING FACTS

OPERATING VS. FINANCIAL

Operating Lease VS. Financial Lease

• Operating Lease
• Not amortized completely
• Relatively long term and non-cancellable
• Lessor retains the ownership of the asset and claims depreciation
• Lessee deducts the entire lease payments as an expense
• Lessee may extend the lease or return leased equipment to the lessor at the end of the lease term

• Financial Lease
• Amortized completely
• Relatively short term and cancellable
• Lessee records the leased equipment as an asset on the balance sheet and claims depreciation
• Lessee recognizes period payments as part interest and part reduction of principle
• Lessee may have an option to purchase the leased equipment at the end of the lease term below fair market value