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 - lessee’s depreciation risk is limited.
