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Equipment leasing is a way to spread the costs over a set amount of time. You may not own the equipment when you lease, but you don't have to worry about your equipment becoming obsolete. With equipment leasing, you pay a fixed rate over a specific period. The interest and fees are built into the payment.

Leasing capital equipment: Lowers upfront costs, compared to buying equipment outright. Reduces the chance that your company gets stuck with obsolete equipment, if your contract specifies upgrades. Transfers the cost of equipment maintenance to the leasing company, again according to the terms of your contract.

An equipment lease is a contractual agreement between the owner of the equipment and a lessee who wants to use the equipment for a specific period in exchange for set payments. In some cases, the lease allows the lessee to purchase the equipment at the end of the term with a balloon, or large, payment.

The two primary types of leases are operating leases and long-term leases. Operating leases are characterized by short-term, cancelable terms, and the lessor bears the risk of obsolescence.

The equipment account in the balance sheet is debited by the present value of the minimum lease payments, and the lease liability account is the difference between the value of the equipment and cash paid at the beginning of the year.

Leased assets behave like fixed assets, but the business does not have legal ownership of the asset during the lease term. Moreover, leased assets can be finance or operating in nature.

When the lessee elects to purchase the leased asset at the end of the term, the asset is depreciated over its useful life since it will become the lessee's fixed asset. Under ASC 842, ROU assets can either be finance assets or operating assets, and the accounting for each is slightly different.

Most lessors earn profit through significant charges outside of the regular term rent stream, including interim rent, retained deposits, fees, lease extensions, non-compliant return charges, fair market value definitions, and end-of-lease buyouts for equipment that cannot be returned.

Car leasing is definitely a profitable business idea, considering its structure. Customers within the lease framework pay a certain amount monthly for 2-4 years, after which the car reverts to the lessor. It doesn't get more lucrative than that.

Business equipment leasing can be a solid way to supply employees with what they need to get the job done, but it's not necessarily the most cost-effective over the long run. Before you sign an agreement, it's important to be aware of the pros and cons.