What classification is applied to a lease if it meets any one of the established criteria?

When a lease meets any one of the established criteria defined by accounting standards, it is classified as a capital lease, also known as a finance lease under certain frameworks. The criteria typically include factors such as whether the lease transfers ownership of the asset to the lessee at the end of the lease term, whether the lease term covers a major part of the asset's economic life, and whether the present value of lease payments equals or exceeds substantially all of the fair value of the asset.

Classifying a lease as a capital lease requires recognizing the asset and liability on the balance sheet, reflecting the total financial obligations associated with the lease. This impacts the financial statements significantly, requiring rent expenses to be recorded as depreciation and interest, thus aligning the accounting treatment of leased assets more closely with owned assets. This classification provides a clearer picture of a company's financial obligations and asset utilization.

In contrast, operating leases do not meet these criteria and are treated differently for accounting purposes; they typically do not appear on the balance sheet, and lease payments are recorded as expenses over the lease term. The other classifications, such as financial leases and lease-purchase agreements, while related, are not specifically defined terms under U.S. GAAP in the same way as capital or operating leases.