Definition of lease
A lease involves hiring equipment or buying it on a hire-purchase type arrangement to avoid the capital outlay. For accounting purposes, there are two types of lease - an operating lease, where the risks and rewards of ownership remain with the lessor, and a finance lease, where the risks and rewards of ownership pass to the lessee. Finance leases are accounted for as assets with loans (ie the asset and loan are on the lessee's balance sheet) whereas the operating lease payments are treated as an expense (ie the asset and loan are not on the lessee's balance sheet).
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