Capital Lease
A capital lease is a lease arrangement that, for accounting purposes, is treated as the acquisition of an asset and a corresponding liability because it transfers substantially all the risks and rewards of ownership to the lessee. Under older U.S. Generally Accepted Accounting Principles (GAAP) standards it was classified as a capital lease; under ASC 842 (Accounting Standards Codification 842) the equivalent classification is a finance lease.
Example: A company signs a 5-year lease for a specialized manufacturing machine and, because the lease meets several capitalization tests, records a right-of-use asset and a lease liability on its balance sheet.
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