Capital Lease Obligations

Definition

A capital lease is a contract entitling a renter to a temporary use of an asset, and such a lease has economic characteristics of asset ownership for accounting purposes. The capital lease requires a renter to add assets and liabilities associated with the lease if the rental contract meets specific requirements. In substance, 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).

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