Chapter 26 I. Leases and Lease Types a. Lease: a contractual agreement between two parties: the lessee and the lessor b. Lessee: The user of an asset in a leasing agreement. The lessee makes payment to the lessor c. Lessor: The owner of an asset in a leasing agreement. The lessor receives payments from the lessee. II. Leasing vs. Buying a. The decision to lease or buy amounts to a comparison of alternative financing arrangements for the use of an asset (cost of leasing vs. cost of financing and buying) b. Figure 26.1 on page 827 III. Operating Leases a. Operating Lease: Usually a shorter-term lease under which the lessor is responsible for insurance, taxes, and upkeep. May be cancelable by the lessee on short notice b. Three characteristics that define an operating lease: i. The payments received by the lessor are usually not enough to allow the lessor to fully recover the cost of the asset 1. there is a residual or salvage value after lease is up (leasing car for 5 years, still has worth after 5 years)
This is the end of the preview.
access the rest of the document.