Final answer:
A capital lease is not the same as an operating lease. Capital leases transfer ownership risks and rewards to the lessee and are similar to a purchase, while operating leases are more like renting and the lessor retains ownership risks and rewards.
Step-by-step explanation:
A capital lease is not the same as an operating lease.
Capital leases, also known as finance leases, are long-term leases that transfer substantially all of the risks and rewards of ownership from the lessor to the lessee. The lessee records the leased asset as their own and displays it on their balance sheet. This type of lease is considered similar to a purchase and typically comes with an option to buy the asset at the end of the lease term for a nominal amount.
An operating lease, on the other hand, is a shorter-term lease where the lessor retains the risks and rewards of ownership. The leased asset is not recorded on the lessee's balance sheet, and the lease payments are treated as operating expenses. Operating leases are more like renting and are commonly used for assets that have a shorter useful life.
In summary, a capital lease and an operating lease are different in terms of the risks and rewards of ownership, the treatment of the leased asset on the lessee's balance sheet, and the lease term.