Which Lease is Right for Your Business?


Financing and Accounting Terminology


F.A.S.B. 13                   This term stands for Financial Accounting Standards Board Statement No. 13, which created a specific set of guidelines for accounting for all leases.  The FASB is associated with the American Institute of Certified Public Accountants.

CAPITAL LEASE           FASB #13 requires lease be capitalized and depreciated for accounting purposes

OPERATING LEASE     Qualifies under FASB #13 for off-balance-sheet treatment.  In many cases, we can structure an operating lease if it is beneficial for the lessee.


Tax Terminology

TRAC                           (Terminal Rental Adjustment Clauses) Tax lease with lessee guaranteeing residual. Not available for consumer leases. TRAC leases are acceptable only for autos, trucks, and trailers.

TRUE LEASE                (Tax Lease) Lease whereby lessor retains tax benefits of ownership. Conditions of a true lease are broadly defined in Revenue Ruling 55-540.


Industry Terminology

CLOSED-END LEASE    (aka Net Lease, Operating Lease, Walk-away Lease) Lessor provides equipment and assumes depreciation risks.

OPEN-END LEASE       (aka Finance Lease) Lessor provides vehicle, lessee assumes risk of depreciation. In the case of a consumer lease, the Truth In Lending Act limits the risk.

MODIFIED OPEN-END    Quasi open-end lease - lesseeā€™s depreciation risk is limited.