Leasing is a flexible form of financing that allows the use of a product without having to pay for the full face value. You only pay for the anticipated depreciated value of the item plus the cost of money (interest charge). At the end of the lease (operating lease) you may either return the product, purchase the product at the Fair Market Value or you may choose to re-lease the item based on the then current value and interest rates. These different options for the end of lease terms are structured before the lease is signed (executed).
Types of Leasing
A capital lease is essentially a financed purchase of a product over time, and the value of the purchase item at the end of the lease is predetermined to be a price less than the Fair Market Value of the purchase. The Lessee (you) will actually own the purchased item at the end of the lease period by making one last final payment. For both tax and accounting purposes the purchased item (capital asset) will be reported as property of the lessee.
In an operating lease, the Lessee has the right to use the purchased item, but does not own the item; and the Lessee may return the asset or purchase it at fair market value at the end of the lease. For both tax and accounting purposes, the asset is reported as property of the lessor (the company who is financing the item).
Units create a purchase requisition in FIS and then are required to send the lease proposal and any other supporting documentation (e.g. competitive quotes) to firstname.lastname@example.org for review and Lease Order issuance. Please refer to the Leasing FAQ for more information on what is required when leasing goods or services.