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This video discusses the five tests used to determine whether a lease should be classified as an operating lease or a finance lease. Under the new standard, all leases longer than one year must be capitalized, meaning the lessee will recognize an asset and liability on their balance sheet. The classification of the lease affects the income statement, determining whether interest expense, amortization expense, or lease expense is recognized. Further details on accounting will be discussed in a future video, but for now, the focus is on understanding how to classify leases correctly.
