What is the difference between a capital lease and an operating lease.

Homework week 2 need answer to each question plus supporting

A capital lease is a long-term contract in which the lessee acquires ownership of an asset while still paying periodic rental payments to the lessor. At the end of the lease, the lessee assumes full ownership of the asset and can choose to either return it or buy it at fair market value. Capital leases are used for expensive equipment that will be held for a long time and typically have terms ranging from 3-7 years.

An operating lease is an agreement in which ownership remains with the lessor, who charges periodic rent payments. Operating leases are usually shorter than capital leases and often do not require any down payment from the lessee. They are most commonly used for equipment that needs to be frequently updated such as computers or office furniture.