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Leasing enables the firm to obtain the use of certain

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Unformatted text preview: al cost of the leased asset. Leasing enables the firm to obtain the use of certain fixed assets for which it must make a series of contractual, periodic, tax-deductible payments. The lessee is the receiver of the services of the assets under the lease contract; the lessor is the owner of the assets. Leasing can take a number of forms. Basic Types of Leases The two basic types of leases that are available to a business are operating leases and financial leases (often called capital leases by accountants). Operating Leases An operating lease is normally a contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for 5 or fewer years, to obtain an asset’s services. Such leases are generally cancelable at the option of the lessee, who may be required to pay a penalty for cancellation. Assets that are leased under operating leases have a usable life that is longer than the term of the lease. Usually, however, they would become less efficient and technologically obsolete if...
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