One of the major distinctions between an operating lease and a capital lease is the fact that annual rental payments under a capital lease are higher than rental payments under an operating lease.

Question

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The major distinction between an operating lease and a capital lease is not the amount of the rental payments, but rather how the lease is accounted for on the lessee's balance sheet. A capital lease is treated like an asset purchase, affecting both assets and liabilities, whereas an operating lease is treated more like a rental, with payments recognized as an expense on the income statement.

One of the Major Distinctions Between an Operating Lease and a Capital