What is a Lease?

• A. A legal ownership transfer to the lessee.
• B. An agreement conveying the right to use property, plant or equipment for a stated period of time in exchange for rent.
• C. A service contract with no use of property.
• D. A loan secured by the asset.

Answer: (B)

A lease is a contract that gives the lessee the right to use property, plant, or equipment for a defined period in exchange for rent. Ownership stays with the lessor, and the lessee pays to use the asset rather than purchase it. This distinguishes a lease from a service contract (which may not grant use of a specific asset) and from a loan (which finances ownership of the asset but does not provide ongoing use rights). In accounting, leases typically create a right-of-use asset and a lease liability for the lessee, reflecting the use rights and the obligation to make lease payments.