Operating Lease

An operating lease is basically what you think of when you think of renting. Get a moving van, rent a car, get some scaffolding so you can paint a Notorious B.I.G. mural on your wall...those are all operating leases.

An operating lease stands in opposition to the capital lease. The capital variety represents something closer to a rent-to-own situation. If you get a TV from Rent-a-Center that you'll own after 60 E-Z payments of $29.99...that's a capital lease.

The difference between operating and capital leases becomes important in accounting. Money spent on operating leases are treated like normal expenses. It's just money going out the door. However, capital leases are treated like debt service. The arrangement is closer to a loan, so the expenses are treated as such in the company's financial statements.