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A business can rent a property for a specified period of time under a contract known as a lease. The lessor is the owner of the property, and the lessee is the party that has the right to use the property. Leases which extent over most of the asset life, and which transfer ownership to the lessee at the end of the lease, are called capital leases. Assets held under capital lease must be shown on the balance sheet, and therefore, the Plant Assets is debited and a lease liability account is credited. Operating leases tend to be more short-term, and the lessee does not acquire the leased property at the end of the lease.
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