Accounting word of the week

Today, we will be looking at two forms of leases.

1. An operating lease is rental of property between the lessee and lessor for a fee.

2. A capital lease is in which the lessee obtains significant property rights. A capital lease exists if any one of the following four criteria is met: (1) the lease transfer ownership of the property to the lessee at the end of the lease terms; (2) a bargain purchase option exists; (3) lease term is 75% or more of the life of the property; (4) the present value of minimum lease payments equals or exceeds 90% of the fair value of the property.