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In this video, the five tests used to determine if a lease should be classified as an operating lease or finance lease are discussed. Under the new standard, leases longer than one year must be capitalized, with the lessee recognizing a right of use asset and a liability for lease payments. The classification of the lease affects the income statement, determining if interest expense, amortization expense, or lease expense is recognized. Further details on accounting will be discussed in a future video, but for now, focus on understanding how to classify leases.
