Basic Types of Leases:
Operating Leases
- Most operating leases are for a period of time less than the asset's useful economic life
- Computers, office copiers, and motor vehicles are examples of assets commonly leased in this manner
- At the end of the lease the lessee returns the asset to the lessor who may lease it again or sell it outright
Financial (or Capital)Leases
- Total payments over the lease period are greater than the lessor's initial cost
- Land, buildings, and equipment are examples of assets commonly leased in this manner
- At the end of the lease, ownership of the asset is often transferred from the lessor to the lessee, or the lessee has an option to purchase it at a "prespecified price"
- 1994, HarperCollins Publishers