Explain the close parallel between a capital lease and the borrow–purchase decision from the viewpoint of both the balance sheet and the income statement.

The exchange of proprietorship rights from one party to another after the lease period is a capital lease. A lessee might advantage from capital leasing by obtaining an asset at a lower cost than the market value.

A lease is a long-term agreement to rent property, machinery, buildings, or other items. The user (lessee) pays recurring costs to the asset's owner in exchange for the majority—but not all—of the benefits of possession (lessor). The lease reimbursement provides the lessor with income while covering the particular cost of the assets or other assets. We add an asset and liability to the balance sheet in both situations. In both situations, we also amortize the asset for income statement purposes and deduct interest (implied or actual) on the debt.