An operational Lease or Traditional Lease is where the ownership, asset-related risk, asset transfer, and asset-buying option at the end of the term does not remain with the Lessee. Instead, Lessor takes the risk or shares with Lessee as agreed. At the end of the lease term, the asset is returned to the Lessor. The lessee can only use the assets and pay the lease rentals to the lessor as agreed. On the other hand, Capital Lease, now renamed Finance Lease, has all these features inbuilt into the lease agreement. Virtually the lessee treats the assets as owned or purchased by him, remains responsible for all the associated risks, and usually buyback that very asset from the lessor on expiry of the lease term. The above distinction, like lease, differentiates the accounting treatment for such leases. In the case of an operational lease, only lease rental payment is the only entry in the accounting records. And this lease rental payment flows to the profit and loss account. Moreover, the asset remains the balance sheet item, and hence, no depreciation calculation is considered. However, in the case of a Capital Lease or Finance Lease, the asset leased gets the same treatment given to an asset purchased or owned by the business. All expenses find their way to the profit and loss account; the leased assets reflect as an asset and other assets owned by the entity. Moreover, depreciation calculation on this leased asset also happens like any other asset, considering the lease term.