The CICA distinguishes two types of leases based on the lease terms,and this classification determines the lease's accounting treatment.The two types of leases are
A) fixed leases and variable leases.
B) long-term leases and short-term leases.
C) operating leases and capital leases.
D) temporary leases and permanent leases.

Question

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The CICA (Canadian Institute of Chartered Accountants) distinguishes between two types of leases based on the lease terms: operating leases and capital leases. This classification determines the lease's accounting treatment. Operating leases are treated as rental agreements, and the lease payments are expensed over the lease term. Capital leases, on the other hand, are treated as if the lessee has purchased the leased asset and are capitalized on the balance sheet, and depreciation and interest expenses are recognized. Option A is incorrect because fixed and variable leases are not recognized categories of leases under CICA. Option B is incorrect because the lease term does not determine whether a lease is long-term or short-term. Option D is incorrect because temporary and permanent leases are not recognized categories of leases under CICA.

The CICA Distinguishes Two Types of Leases Based on the Lease