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In this video, we discuss the five tests used to determine if a lease should be classified as an operating lease or finance lease. With the new standard, leases longer than one year must be capitalized, meaning the lessee recognizes an asset and liability on their balance sheet. The classification of the lease is important as it affects the income statement, determining if interest, amortization, or lease expenses are recognized. Further details on accounting will be covered in a future video, but for now, we focus on understanding how to classify leases correctly.
