You may encounter leases in all sorts of businesses. It can be to lease machinery for production, a car for everyday use or small office supplies like a coffee machine. As such when we talk about leases and leasing, we essentially mean gaining a right to use an asset.

When you lease an asset, you regularly pay a certain amount to the lessor for the right to use the asset. However, in certain types of leases you may also get the obligation to take care of maintenance and all similar costs, so in essence, in addition to the right to use the asset (‘reward’), you also gain the risks. In accounting, the leases where substantial risks and rewards transfer from the lessor to the lessee are called ‘finance leases’. When defining ‘substantial’, we do mean on the scale it is incidental to the ownership itself.

Consequently, all other forms of leases are operating leases. They are more simplistic and straightforward. In general, they comprise of limited obligations to the lessor and those obligations are usually worded as ‘paying the regular fee’ and ‘keeping the asset in its pre-leasing condition (taking into account normal aging due to normal usage)’.

The benefits of leases are obvious – you will not have to pay all the money up front for the asset and depending on the terms of the agreement obviously, you may also get the right to return the asset after the term of the lease. Leasing certain types of assets like cars or smaller equipment it may become very handy.
So do consider leasing your new bigger purchase and notice how you have money free for other everyday usage.