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In this video, we discuss five tests used to determine whether a lease should be classified as an operating lease or finance lease. All leases longer than one year must be capitalized. Lessees will recognize a right of use asset and a liability for lease payments on their balance sheet. The classification of the lease affects the income statement, determining whether interest, amortization, or lease expenses are recognized. Details on accounting will be discussed in a future video, but for now, focus on understanding how to classify leases.