The Financial Accounting Standards Board (FASB) issued FASB Statement No. 13 Accounting for Leases (SFAS 13). SFAS 13 establishes standards for financial accounting and reporting for leases by lessees and lessors. For lessees, a lease is a financing transaction called a capital lease if it meets any one of four specified criteria; if not, it is an operating lease. Capital leases are treated as the acquisition of assets and the incurrence of obligations by the lessee. Operating leases are treated as current operating expenses.
In July 2006, FASB announced that it was formally opening a project to reconsider the current accounting standards for leases in order to take a fresh look and the goal of this project is to develop principles that would faithfully represent lease transactions in the financial statements of lessees and lessors and would reflect similarities and differences in the wide variety of leasing arrangements prevalent in today's business environment. Read more on the FASB Lease Accounting Project.
FASB Standard:
SEC Guidance:
AICPA Guidance:
Learn More About SFAS 13: