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One of the most advantages of using operating leases is the potential tax benefits. A lease...

One of the most advantages of using operating leases is the potential tax benefits. A lease may allow the business to deduct the payments as operating expenses during the period that the business paid them. How would the capital lease impact the financial statements? Create a positive and negative argument in this regards.

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Answer #1

Capital Lease- It is a contract of using an asset on temporary basis. Operating lease does not hae impact of financial statement while capital lease has.

Capital lease is recorded as asset as well as liability in the balance sheet. When lease is taken, it is considered "Purchase of asset" in certain criteria. The asset is depreciated. Capital lease payment has two elements: Principal and interest, Interest is shown in the income statement.

So we can say that capital lease has an impact on company's financial statements and the items include; depreciation and interest in the income statement and also as asset and liability.

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