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A Capital Lease is treated like a purchase for tax and depreciation purposes. The leased equipment is shown as an asset and/or a liability on the lessee's balance sheet, and the tax benefits of ownership may be realized, including Section 179 deductions.

In summary, calculating equipment leases under ASC 842 requires determining the present value of lease payments using the company's IBR and recognizing a lease liability and right-of-use asset on the balance sheet at the inception of the lease.

If you use what's called a capital or finance lease, you report the leased property on your balance sheet as if it were an asset you own. If you have an operating lease, you record it as a liability.

The account entitled Leased Equipment Under Capital Lease is a non-current asset, which is generally shown under the property, plant, and equipment section. The account entitled Obligation Under Capital Lease is a liability, of which part is classified as current and part as long term.

Let's review each type in more detail, starting with operating leases and finance leases, the two basic types of equipment leases, or, more specifically, the two basic types of lease classifications. From there, we'll dive into lease classifications that fall within the two most basic types.

Hard assets: The equipment you lease must be considered a hard asset ? anything that could be listed as personal property and not permanently attached to real estate.

The lessee records the leased right as an item of property, plant, and equipment, which is then depreciated over its useful life to the lessee. The lessee must also record a liability reflecting the obligation to make continuing payments under the lease agreement, similar to the accounting for a note payable.

Hard assets: The equipment you lease must be considered a hard asset ? anything that could be listed as personal property and not permanently attached to real estate.