Capital leases are rental agreements for which

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Capital leases are treated as if the lessee has purchased the asset, so the contractual arrangements are similar to a purchase. This is in contrast to operating leases, where the lessor retains ownership of the asset and only rents it out for a limited time. Periodic rental payments for capital leases are not recorded as rental revenue but instead as depreciation expense and interest expense on the lessee's income statement. The lease period for a capital lease is generally a significant portion of the leased asset's useful life, and while the lessee has effective control and use of the asset during the lease period, legal ownership remains with the lessor until the lease ends.

Capital Leases Are Rental Agreements for Which