A leasing arrangement refers to an agreement between a lessor (the owner of an asset) and a lessee (the user of the asset) for the use of a specific asset over a defined period of time, in exchange for regular rental payments. It is a common form of financing for businesses to acquire assets without the need for upfront payment or taking on debt.
Under a leasing arrangement, the lessor retains ownership of the asset while the lessee enjoys the benefits of its use. The lessee pays rent or lease payments over the agreed period, typically on a monthly basis, in return for the right to use the asset. This allows businesses to acquire necessary assets such as equipment, machinery, vehicles, or property, without the burdens of full ownership.
Leasing arrangements can provide various benefits to businesses, including preserving cash flow, flexibility in asset acquisition, tax advantages, and the ability to upgrade to newer assets without the need for full ownership. However, it is important for businesses to carefully evaluate the terms and conditions of the lease agreement, including lease duration, termination clauses, maintenance responsibilities, and potential residual value obligations, before entering into a leasing arrangement.
What is a leasing arrangement in business studies
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