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In this lease, the asset is returned by the lessee after using it for lease term agreed upon. In financial lease (Also known as capital lease), the risks and rewards related to ownership of asset leased are transferred to the lessee. Ownership of the asset remains with the lessor for the entire lease period.
In operating lease the equipments posed by the leasee but risk lies with lesser.Even leasee cannot claim depreciation in books because ownership is with leasee .Lesser has to pay rent as per the agreement.In the case of financial lease the company gets fiancial support from a company,as per terms the leasee repays the money together with interest.This is not mostly in practice in India.Company goes for loans from banks and run the show. Equipment lease is in practice.To my knowlege this is the difference.Thanks for inviting.
Thanks for invitation
Operating leases are rental agreements between a lessor and lessee. The lease supplies the equipment to the leader. The lessor is responsible for servicing and maintaining the leased equipment. The period of the lease is fairly short less than the expected economic life of the asset.
A finance lease is a lease that transfers substantially all of the risk and rewards of ownership of an asset to the lease. It is an agreement between the lessee and the lessor for most or all of the asset expected useful life.
I can fully agree with previous answers. The most common difference is related to depreciation: you will depreciate the assets only in financial lease, not in operating.
-An operating lease agreement to finance equipment for less than it's useful life,& the lessee can return equipment to the lessor at the end of the lease period without any further obligation.
--Also ownership of the asset remains with the lessor for the entire lease period,It's treated generally like renting,and the asset doesn't appear on the balance sheet.
-Financial lease is known as capital lease,so the risk and rewards related to ownership of asset or transferred to the lease.
-It's treated like loan generally, the asset appears on the balance sheet.
The operation lease not ending by possession for the rented asset and the financial lease ending by possession
Operating lease treated as rental & finance lease treated as Capitalise an Asset on maturity date.
