Roseville Accounting Services for Capital Leases

Cook CPA Group

Accounting for a capital lease can be an intricate and complicated process. However, if you are interested in the leasing of equipment and similar assets that could greatly benefit your business, you should understand how a capital lease works. Additionally, various factors must be considered to determine whether your lease should be considered a capital lease or an operating lease. If you need accounting services regarding a capital lease, contact an experienced Roseville certified public accountant for capital leases.

At Cook CPA Group, we recognize that operating a business and staying apprised of developments in the tax and financial industry is difficult, and we are here for you. Our team will work tirelessly to address all your financial concerns regarding capital leases. To schedule a free consultation to discuss your capital lease, contact Cook CPA Group at (916) 259-5289, or contact us online.

4 Criteria for a Capital Lease

A capital lease is a lease that is used to secure business equipment. The meaning of a capital lease depends on the viewpoint of the party that is leasing the equipment (lessee), and the party is offering the lease (lessor). The lessee views a capital lease as the purchase of property, while the lessor considers the lease to be a loan to the lessee.

Capital leases change the traditional notion that a lessee does not own the property that they leased. That is why it is important to understand how a capital lease works and the benefits provided by a capital lease.

Generally, capital leases operate as long-term leases and are used to secure business equipment that would remain useful for a long period of time instead of becoming obsolete in the near future. Additionally, a capital lease allows a lessee to enjoy the benefits that accompany the ownership of property, like being able to claim depreciation on that property.

The Financial Accounting Standards Board (FASB) is a federal agency that regulates the accounting practices that is used by accounting firms and similar businesses in the United States. According to the FASB, to qualify a lease as a capital lease, one of the following four criteria must be met:

  1. At the end of the lease, the lessee will be transferred the title to the equipment.
  2. The capital lease contains a clause that gives the lessee an option to purchase the equipment for an amount that is well below fair market value. In many cases, the option to purchase will permit the lessee to purchase the equipment for $1.
  3. The length of the capital lease will run longer than 75% of the useful life of the equipment.
  4. The amount of the lease payments is more than 90% of the fair market value of the equipment being leased.

At least one of these conditions must be met for a lease to qualify as a capital lease. If none of the above requirements are met, the lease will be determined to be an operating lease.

An operating lease, also known as a service lease, is utilized as a short-term lease that typically is in effect for less than a year. Operating leases are often used to secure technologically advanced items like modern laptops and computers. It is also important to note that if you have an operating lease, you cannot take advantage of the benefits of owning the leased equipment like you could with a capital lease.

To learn more about capital leases and how they operate, you should continue reading and speak with an experienced California capital leasing accountant.

Accounting Tips for Capital Leases in Roseville, CA

As mentioned, the FASB handles regulations regarding capital leases and various other financial issues within the United States. The FASB has recently implemented new rules that affect how capital and operational leases work. For example, it is now required that leases with a term longer than 12 months must appear on a business’ balance sheet as an asset and a liability.

Aside from FASB regulations, there are various accounting tips that our firm is ready to provide you and your business. For example, we can work with you to determine whether a piece of equipment will be depreciable before you enter into a capital lease. Additionally, we can help you decide whether a capital lease or an operating lease is suitable for your unique needs.

Work with Our Roseville Accountants to Manage Your Capital Lease

If you require the aid of an accountant to manage your capital lease, contact an experienced Roseville accountant for capital leases. The accounting team at Cook CPA Group possess a wealth of experience regarding various financial issues, including capital leases, and we are ready to work with you. To schedule a free consultation, contact Cook CPA Group at (916) 259-5289, or contact us online.

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