Which of the following is true about capital leases?

Capital leases are agreements that essentially allow a lessee to use an asset while providing the financial characteristics of ownership. When a lease is classified as a capital lease, it typically requires the lessee to recognize the leased asset on their balance sheet, thus registering it as property. This is important for reflecting the economic reality of the lease, as the lessee effectively controls the asset and receives most of the benefits and risks associated with ownership, even though legal title may not have actually transferred.

Under accounting standards, certain criteria must be met for a lease to qualify as a capital lease, including the lease term being significantly longer than the useful life of the asset or the present value of lease payments equating to a substantial portion of the asset's fair market value. As a result, the recognition of the asset on the lessee's balance sheet aligns with the actual use and control of the asset they are benefiting from during the lease term.

This characteristic distinguishes capital leases from operating leases, which do not require the recognition of the asset on the balance sheet since they are considered more akin to rental agreements without the transfer of risks and benefits of ownership. Thus, option C accurately captures the nature of capital leases in terms of financial reporting and asset recognition.