Lease accounting changes are always afoot. The most important changes related to CAM (common area maintenance) accounting, lease accounting journal entries, you name it, are the new lease accounting standards ASC 842, GASB 87 and GASB 96 in the U.S., and IFRS 16 internationally.

In this guide, we will go over everything you need to know now that the lease accounting standards are effective.

If you’re looking for new lease guidance, you’ve come to the right place. Let’s hop right in.



The new lease accounting standards consist of the statements ASC 842 and GASB 87 & GASB 96 in the U.S., and IFRS 16 internationally. These statements released by various lease accounting bodies are meant to change the way leases are documented on financial statements. The new system seeks to ensure that financial statements for all organizations - from public companies to governmental agencies -  are more transparent for leases.

Grab this quick reference guide  to the new lease accounting standardsnow to provide a summary of key points to your clients, but below we provide a quick run-through of each standard involved in these lease accounting changes.




Lease standard effective date: January 1, 2019

IFRS 16 is an international standard promulgated by the International Accounting Standards Board (IASB) effect in 2019 and require lessees and lessors to recognize assets and liabilities for leases longer than 12 months. IFRS 16 abandones the use of capital leases and operating leases. Now, leases under IFRS 16 are identified under a single “right-of-use” (ROU) model. Unlike the previous statement, all ROU assets must be displayed on an organization’s balance sheet. This allows organizations to report and represent their lease transactions more properly and transparently.


Lease standard effective date: June 15, 2021

Released by the Governmental Accounting Standards Board (GASB), GASB 87 requires all leases longer than 12 months to be recorded as liabilities and ROU assets, just like IFRS 16, for entities that follow GASB accounting, which includes local municipalities, public school districts, and airports. In addition, GASB 87 leases are generally known as “financings” rather than continuing to distinguish operating and capital leases.

Download a side-by-side comparison guide to GASB 62 vs GASB 87 here.

ASC 842

Lease standard effective date: fiscal years starting after December 15, 2018 - public companies
ASC 842 replaced ASC 840 and requires leases 12 months and longer to be recorded on public companies’ balance sheets.

Lease standard effective date: fiscal years starting after December 15, 2021 - private entities and non-profit organizations
The same standard, ASC 842, has a different effective date for all other U.S. organizations that follow generally accepted accounting principles (GAAP) under the Financial Accounting Standards Board (FASB).

ASC 842 classifies leases as either operating or finance leases. The term “finance lease” replaced “capital lease” in ASC 842 as well as the criteria that defined each. On balance sheets, lessees are required to recognize the assets and liabilities for both operating and finance leases. You can calculate the lease liability as the present value of lease payments. The right-of-use asset is the lease liability, adjusted by prepaid rent, initial direct costs, and lease incentives received.

Among lessors, lease accounting predominantly remained the same from ASC 840 to ASC 842. Here are the three classifications of leases under this new lease accounting standard for lessors:

Sales-Type Lease

This type of lease calls for a recognition of a profit or loss on a sale because the lessor is assumed to be selling a product to a lessee. The lessor then also derecognizes the asset, recognizes their net investment on the lease, and recognizes any initial direct costs as an expense. The lessor is often a manufacturer or dealer in this case.

Direct Financing Lease

For this type of lease, a lessor leases assets to their customers after acquiring them, with the intent of using interest payments to generate revenue. The lessor recognizes the gross investment in the lease and the related amount of unearned income under this arrangement. The lessor is generally not a manufacturer or dealer in this case.

Operating Lease 

Under an operating lease there is no transfer of ownership of an asset. The asset is leased for a period of time less than its useful life and reclaims the leased asset at the end of its term. This asset stays on the lessor’s balance sheet, unlike the other two lessor lease types.


Lease standard effective date: fiscal years starting after June 15, 2022

GASB 96 lays out the accounting principles for SBITAs. A SBITA stands for a Subscription-Based Information Technology Arrangement. SBITAs are similar to leases, but there are some distinctions between the two. First, SBITAs are not between lessees and lessors. Instead, they are arrangements between government entities and IT vendors. Similar to the rest of the new lease accounting standards, GASB 96 uses the term right-of-use asset. In this case, SBITAs are arrangements that give government entities the right to use a subscription asset at its present service capacity. To learn more about SBITAs and GASB 96, check out our webinar recap.  

As you can see, there is a theme with all of these different standards: As each of these standards goes into effect, the way leases are documented and recognized is changing to more accurately reflect committed future lease payments for entities.

Why All the Lease Accounting Changes? 

Under the previous lease standard, payment obligations of operating leases are not reflected on the balance sheet even if you have committed to many years of payments. In other words, a future debt (a liability) was nearly invisible on financial statements. These payments were mentioned in footnotes, but not prominently like liabilities on the balance sheet.

Many organizations have dozens, or even hundreds, of operating leases, which can result in a huge gap for anyone trying to understand that company’s financial situation via their balance sheets. This is primarily why the FASB, GASB, and IASB made the change.

Since these accounting organizations continually offer new lease guidance regarding lease accounting changes based on stakeholder feedback, it’s important to watch for ongoing updates about the new lease standard. 


Download the New Lease Standard Quick Reference Guide today!

Impact of the New Lease Accounting Standards

As you’d expect, implementing the new lease accounting standards by the lease standard effective date means you and your clients must change how you think about and account for individual leases. Here is a list of a few considerations to keep in mind as well:

1. Debt covenants

Changing accounting methods doesn’t change an organization, but it can affect the way financial results are viewed by outside parties. In particular, adding significant lease liabilities can impact compliance with debt covenants. It’s critical that your clients get a handle on the potential impact and start conversations with their bank as early as possible.

2. Policy elections

The new lease accounting standards requires organizations to make policy decisions about how they will handle leases. While practical expedients can simplify implementation, they can also result in a larger liability and asset on the books. Early on, your clients need to review and decide which policies are right for their organization.

3. Process and controls

In most organizations, operating lease decisions have been fairly decentralized, especially when multiple locations are involved. The new lease standard requires these decisions to be centrally documented and available for accounting, which introduces a need for new systems, processes, and controls. The good news is that organizations are often finding efficiencies and cost savings with this new approach.



For each client, you will need to first identify the lease accounting standard that applies to them specifically, along with the applicable effective date. 

With the changes brought on by these new lease accounting standards, many companies find that identifying and analyzing their leases requires more resources and expertise than they have available. Don’t underestimate the requirements for this initial step. In fact, you may want to consider engaging outside advisors from the start to avoid errors and higher costs after implementation.

How do you implement the new lease accounting standards? For a checklist of key steps in the implementation process, download “Are You Ready for the New Lease Accounting Standard?” 

And if you’re wondering how prepared your organization is for the new standard, take this quick readiness assessment to find out!


Effective Dates of the New Lease Accounting Standards

Depending on whether your organization is a US public company, a state/local government, or an international entity, you will have a different lease standard effective date. Here’s a quick guide to which lease standard effective date you should follow:

  • Lease Standard Effective Date for Public Companies: fiscal years starting after December 15 , 2018
  • Lease Standard Effective Date for Non-Public Organizations: fiscal years starting after December 15, 2021
  • Lease Standard Effective Date for State/Local Governments: fiscal years starting after June 15, 2021 for physical-asset leases and fiscal years starting after June 15, 2022 for SBITA leases
  • Lease Standard Effective Date for International Companies: fiscal years starting after December 15, 2018



Initial Application Date

Now that you know your lease standard effective date, you can determine your initial application date. The original guidance for all standards stated that the initial application date would be the first day of the first fiscal year represented in your financial statements. While the FASB now offers a practical expedient so organizations can avoid restating prior years, the GASB did not. These dates would work as follows under the original guidance:

  • If your fiscal year ends December 31, 2022 and you include two comparative years in your financial reports, your initial application date is January 1, 2020.
  • If your fiscal year ends March 31, 2023 and you have one comparative year in your financial reports, your initial application date is April 1, 2021.

The FASB recognized that the above guidance requires restating prior years, and therefore reporting is a significant amount of work. In order to decrease the difficulties, they issued ASU 2018-11 in July 2018, which amends the new lease standard to allow companies to avoid prior-year restatement. Most organizations do elect to take advantage of this practical expedient. Therefore, sticking with the same example dates above, initial application date would be calculated as such:

  • With a fiscal year end of December 31, 2022 and two comparative years in your financial reports, your initial application date is January 1, 2022.
  • With a fiscal year end of March 31, 2023 and one comparative year in your financial reports, your initial application date is April 1, 2022.

Commencement Date

An important date for individual leases is the commencement date, which is the date the underlying asset is available for use by the lessee. It’s important to note that this may not be the date when the lessee enters into the agreement with a lessor. Lease classification and measurement should take place at the commencement date.

Modification effective date

Sometimes leases are renegotiated. If this results in a new contract, renewal, or other extension not previously anticipated, it is treated as a new lease. Otherwise, assumptions such as the discount rate, fair value, and remaining economic life of the underlying asset are reviewed and updated as of the modification effective date, with modification gains and losses also recognized as of the same date.

Remeasurement date

Other times, a triggering event occurs that was not otherwise anticipated. Generally, this is something that requires the lessee to reassess the lease term. The date as of which this triggering event occurs is called the remeasurement date. Note that the lessee should also update the discount rate and any variable lease payments as of the remeasurement date.




A critical part of implementing the new lease accounting standard is reviewing existing contracts, determining what does and doesn’t qualify as a lease, and creating initial journal entries to apply the standard to the balance sheet.

This chapter of our lease accounting changes guide examines what you need to know about what does and doesn’t qualify as a lease, separating lease components, making policy elections, and auditing leases.

Pressed for time? Download the Lease Audit Checklists for Office Space and Vehicle Leases now to get started. 


Download the full Lease Audit checklists today!


What Qualifies as a Lease? 

Step 1: Understand what qualifies as a lease

Before reviewing your portfolio of contracts, it’s important to understand exactly what qualifies as a lease under the new lease standard. Under the new lease accounting standards, all leases must be recognized as both an asset and offsetting liability for future lease payments. 

This is a big difference from the previous standard, where operating leases were not reflected on the balance sheet. There are a few considerations that help determine if a particular contract is a lease:

Is it an Embedded Lease?

One key to knowing that you have a lease rather than another type of contract is whether you have the right to control or use an asset, also called the right-of-use, or ROU Asset. Additionally, the asset itself must be explicitly or implicitly identified, as well as be physically distinct. Also keep in mind that some leases of physical assets are embedded in service arrangements or other vendor contracts.

Step 2: Identify Embedded Leases

The embedded lease definition is when there is a contract with a vendor that uses an asset as part of the value provided and the use of that asset meets the definition of a lease. A contract may contain a lease even if it's a service contract. 

To properly implement the new lease accounting changes, organizations should review every contract to ensure all leases, regardless of labeling, are properly included in the financial statements.

According to ASC 842-10-15-3: "A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. A period of time may be described in terms of the amount of use of an identified asset (for example, the number of production units that an item of equipment will be used to produce)."

Our Embedded Lease Identifier is an excellent free tool to make identifying potential embedded leases within contracts vastly simpler and quicker over doing so manually. 

Step 3: Separate Lease and Non-Lease Components



Not all costs related to a lease are included in the leased asset and liability. For example, a lessor may lease a truck and also include a provision to operate the truck on behalf of the lessee. Providing a driver, maintenance, and gas are not related to securing the use of the truck and these costs would be considered non-lease components.

On the other hand, costs attributable to securing the asset itself should be included in the lease payments for both classifying and measuring the lease. For example, a non-refundable upfront deposit would be considered a lease component.

A hallmark of ASC 842 leases is the fact that they require quite a bit of judgment. This means you need to think about the intent of a particular payment to determine whether it should be included or excluded. This is a good starting place when considering how to classify lease-related payments.

Likely to be 
lease components

Likely to be non-lease components

Not likely to be lease or non-lease components

  • Fixed lease payments
  • Lease payments that vary based on an index or rate (see the variable leases section below for differences between FASB and IFRS)
  • A fixed portion or minimum for a variable lease payment (see Variable Leases section below for more detail)
  • Non-refundable deposit
  • Early termination fees (if likely to terminate the lease early)
  • Residual value guarantees
  • Service contracts for the leased asset (fuel, consulting, maintenance)
  • Included parking spaces, if in an area where parking is at a premium
  • Common area maintenance
  • Real estate taxes
  • Insurance 

Lease Standard Policy Elections


Step 4: Making the Right Policy Elections

A critical part of implementing the new lease accounting standards, including auditing leases, is making the required policy elections, summarized below. For leases shorter than 12 months, entities get to choose whether or not to implement the new lease accounting standards.

Sometimes, the changes in lease accounting can make the recognition of lease payments easier, so it’s worth getting familiar with them in case opting to follow them would save you time and effort in accounting for leases.

Short-Term Leases

Lessees may make a policy election not to apply the standard (that is, not recognize a right of use asset or lease liability) to short-term leases of 12 months or less for all classes of underlying assets. 

If this election is made, the lessee would recognize the lease payments as operating expenses straight-lined over the lease term. This election saves time in accounting for these leases, but the disadvantage is that different accounting policies and processes need to be in place for short-term and long-term leases.

Non-Lease Components

A lessee may choose—as a practical expedient for the class of underlying asset—to account for the lease and non-lease components as a single combined lease component. If this election is not made, the lease payments are allocated to the separate lease and non-lease components, using relative standalone prices (estimated if not readily available). While this expedient saves time, the lessee will have a larger liability (and ROU asset) by treating non-lease components as lease components.

Discount Rate

At the lease commencement date, lessees determine the present value of the lease payments to calculate the ROU asset and lease liability using the rate implicit in the lease. Because the rate implicit in the lease is almost never readily available, the lessee can also use their collateralized borrowing rate, which would be the rate at which the lessee would borrow money to purchase the same asset with a similar loan term. 

It is important to note that an organization cannot use the same discount rate for leases of different items with different terms. For example, the discount rate for a 10-year office lease would likely be different from a 3-year vehicle lease.

Alternatively, non-public companies subject to FASB ASC 842 can elect to use a risk-free rate of return as the discount rate for all leases, regardless if the implicit rate is known. This election saves time and reduces audit risk; however, the risk-free rate will likely be a lower rate than the incremental borrowing rate, creating a larger lease liability.*

This update made by the FASB makes it easier to comply with the new lease accounting standard.

Recognizing the need for additional flexibility on determining the discount rate, the FASB now allows a nonpublic company to elect using the risk-free rate by asset class. While this election and the asset classes to which it applies must be disclosed, this is an important and positive change.

Organizations can now take the extra time to calculate what is likely a higher collateralized borrowing rate for their largest dollar-value leases, such as office space. For lower-value assets, like vehicles or small equipment, the impact of using the more easy-to-determine risk-free rate is twofold: it saves time and the impact to the lease liability is likely far less material.

*Note that this election cannot be used for entities that follow IFRS 16 or GASB 87/96.



ASC 842 Classification Criteria

Because ASC 842 retains the concept of an operating lease, separating operating leases from finance leases is an important initial step. If any of these five criteria in ASC 842-10-25-2 are met, a lessee would classify the lease as a finance lease:

  1. The lessor transfers ownership of the underlying asset to the lessee by the end of the lease term.
  2. The lessor grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
  3. The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease.*
  4. The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset.*
  5. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

*Lessees can make a policy election, by class of asset, to define what percentage constitutes a major part. Although the FASB did not include a bright-line percentage in ASC 842 as in prior guidance, it has indicated that 75% of the asset’s remaining economic life is a reasonable approach.

*Lessees can make a policy election, by class of asset, to define what percentage substantially constitutes “all.” Although the FASB did not include a bright-line percentage in ASC 842 as in prior guidance, it has indicated that 90% of the fair value of the underlying asset is a reasonable approach. The advantage of defining the major part and substantially all using 75% and 90% respectively, is consistent accounting application across the lease portfolio.



Presentation of ROU assets and lease liabilities

For ASC 87, lessees can make a policy election on how to present their finance and operating lease ROU assets and lease liabilities in their statements of financial position and related footnotes. They can elect to present a separate statement of financial position line items for finance lease ROU assets, operating lease ROU assets, finance lease liabilities, and operating lease liabilities. Or they can disclose in the footnotes, where each of these types of assets and liabilities has been included in the financial statement line items. If leases are not significant, clients may find disclosure in the footnotes to be a better election.

Transition reliefs

A number of practical expedients are available for lessees to apply to leases that commenced before the standard’s effective date. 

The following practical expedients must be elected as a package and, if elected, applied to all leases. Lessees can elect not to assess:

  1. Whether expired or existing contracts are or contain leases,
  2. Lease classification for any existing or expired leases, and 
  3. Whether initial direct costs would have qualified for capitalization for any existing leases.

These three practical expedients can save significant time during the implementation process and we see most organizations adopt them.

Another expedient that can be elected for existing leases at transition is to use hindsight regarding lease renewals and purchase options when determining the lease term and in assessing impairment of the ROU asset. This relief can be elected independently of the previous practical expedient, but it must be applied consistently to all leases. Interestingly, this seems like it would be helpful. In practicality, it opens a proverbial “can of worms” and we see most organizations not electing this expedient.

Here’s another expedient: Lessees may apply a single discount rate to a portfolio of leases with reasonably similar characteristics (such as a similar lease term for a similar class of asset). A single discount rate cannot be applied to the entire lease portfolio.

The final transition relief policy election is one we already stated above: Entities can elect not to restate prior years when it comes to calculating initial application date.


With any rule, there are always exceptions. For example, the leasing standard does not require lessees to apply the guidance to leases with a term of 12 months or less. Additionally, there are certain leasing scenarios that exempt the lease from consideration, including:

  • Leases of intangible assets (e.g., goodwill, etc)
  • Leases to explore or use non-renewable resources (e.g., oil, natural gas, etc)
  • Leases of biological assets (e.g., timber, livestock, etc)
  • Leases of inventory or assets under construction
  • If you comply with the IFRS standards, you may elect to not apply the new lease standard if the underlying asset is of low value. 

Lease Review Checklist for ASC 842

Lease review checklist

Once it’s time to conduct an actual review of each lease, you’ll want to walk through a number of questions. Download free Office Space and Vehicle lease review checklists here to simplify the process.


  1. Determine if it is a lease for accounting purposes under the new lease standard, taking into consideration asset control and identification.
  2. Note general information about the lease, including name, description, lessor, lease terms, termination clauses, renewal options, discount rate, etc.
  3. Outline lease payment terms, including payment frequency, amount, start date, and other relevant details.
  4. Classify the lease correctly based on ownership, economic life, and fair value of the leased asset.
  5. Calculate variable and non-lease payments.


Implementing the New Lease Standard



Once an organization is done with policy elections, lease audits, and other preparations, it’s time to actually implement the new lease accounting standards. This chapter will focus on that process, giving examples and best practices along the way. 


How to Capture Leases on Financial Statements

Implementing the new lease accounting changes requires transitioning all existing leases from ASC 840 leases to ASC 842 leases (or GASB 13 to GASB 87, or IAS 17 to IFRS 16). Here are the steps to do so:

1. Use of practical expedients when appropriate:
  • Initial application date
  • Lease reassessment
  • Use of hindsight
  • Discount rate

2. Calculate lease liability, or the present value of all future lease payments (monthly rents, including known escalators, residual value guarantees, excluding rent holidays) after the Initial Application Date.

3. Calculate the right of use (ROU) asset by starting with the lease liability and adding or subtracting balances on the balance sheet related to this lease. This might include deferred rent amounts, incentives received, or other initial direct costs calculated under ASC 840 or IAS 17.

  • In general, this excludes leasehold improvements, the accounting for which remains relatively unchanged under the new lease standard.

4. Book it! Record your asset and liability as of your initial application date and you’re ready to go forward with the new lease standard.

Footnote Disclosures

The financial statement footnote disclosure is more complex under the new lease accounting standards than it was in the past, with additional requirements for both quantitative and qualitative disclosures. 

There are three categories of quantitative footnote disclosures:

  • Lease expense: This refers to all the various lease expenses that must be accounted for, including amortization and interest for finance leases and straight-line expense for operating leases. In addition, short-term lease expenses, variable lease expenses, and sublease income may need to be included.
  • Maturity analysis: Similar to ASC 840, undiscounted cash flow must be disclosed. ASC 842 adds the requirement to include the present value discount as well.
  • Other information: Required disclosures that fit this category include sale-leaseback transactions, cash flows, new ROU assets, weighted average remaining lease term, and weighted average discount rate.

Qualitative footnote disclosures, on the other hand, are more judgment-based around the nature of a company’s lease arrangements and the level of detail to include. The following are required qualitative disclosures:

  • Existing leases: You must disclose information about the nature of your leases, including description, terms and conditions, options to extend or terminate, and restrictions or covenants.
  • Future leases: Any leases that haven’t begun, but will add significant ROU assets and lease liabilities to the books, need to be disclosed.
  • Judgments: You must also provide information about any significant assumptions or judgments made in applying the new lease accounting standards, such as how you determined whether contracts contained a lease or allocated lease and non-lease payments.

Save Time Implementing and Maintaining the New Lease Accounting Standards

Implementing the new lease accounting standards by the lease standard effective date using just spreadsheets requires a lot of time, sometimes taking weeks to build a spreadsheet with all the necessary formulas for one client. With LeaseCrunch, setting up clients is easy. Contact us or request a demo to see how our automated lease accounting software can help you start doing lease accounting in the most efficient way.

Want to see side-by-side examples of transitioning leases under the new standard? Grab the guide.



What Qualifies as a Lease Under ASC 842?

Because this is a judgment-based standard, judgment is often required to determine whether a contract qualifies as a lease under the new standard (this makes it an excellent area to add value for your clients). Use the following guidelines to determine what qualifies as a lease:

  • It must be a physical asset.
  • You must have the right to control or use the asset.
  • The asset must be explicitly or implicitly identified.

Examples of leases include (but are not exclusive to) rental of office space, photocopiers, computers and servers, vehicles, land, and equipment. Examples of what are not typically considered leases under this standard include software subscriptions, leases for intangible assets, leases for exploration or use of non-renewable resources, and leases of inventory or assets under construction.

It’s also important to note that not all costs related to a lease are included in the leased asset and liability, so part of determining exactly what is a lease will be separating lease and non-lease components. There is no hard and fast rule, as the new lease standard requires quite a bit of judgment, but the key is thinking about the intent of a particular payment. Common items that are likely to be non-lease components include common area maintenance and service contracts for the leased asset.

When reviewing lease contracts, it is also important to determine if there are multiple lease components and, if so, whether those components need to be tracked as separate leases on your books, perhaps because they are designed to function separately or they have significantly different economic lives to evaluate. Don't forget to take advantage of the portfolio exception, where separate assets have such similar terms and characteristics that they can be combined into a single lease for reporting purposes.

What is The Point of ASC 842?

The point of ASC 842 is to foster more transparency between investors and financially-interested parties and public companies.

What Changed with ASC 842?

ASC 842 changed the types of leases that are recorded on balance sheets. Now, leases 12 months and longer are required to be recorded on a company’s balance sheet.

What is the New FASB on Leasing?

The FASB released ASC 842, containing the new FASB lease accounting changes, with a lease standard effective date of  January 1, 2022.

What Types of Leases are Excluded From the New Lease Standard?

Leases less than 12 months can be excluded from a balance sheet. Companies can also elect to apply certain policies of the new standard to their short-term leases if it increases the ease of lease accounting. Additionally, the following asset types are excluded from the new lease standard:

  • Leases of intangible assets (e.g., goodwill, etc)
  • Leases to explore or use non-renewable resources (e.g., oil, natural gas, etc)
  • Leases of biological assets (e.g., timber, livestock, etc)
  • Leases of inventory or assets under construction
  • If you comply with the IFRS standards, you may elect to not apply the new lease standard if the underlying asset is of low value.

Who Must Comply with ASC 842?

Since ASC 842 was released by FASB, all organizations following GAAP must comply with the new standard it sets.

Will ASC 842 Be Delayed Again?

On November 10, 2021, the FASB Board confirmed that the effective date will not be delayed, so non-public organizations must implement the new standard for fiscal years starting after December 15, 2021.

What Are the Basics of the New Lease Standard?

The basics of the new lease standard requires businesses to recognize both a right-of-use asset and corresponding lease liability for all leases exceeding 12 months on their balance sheets. The new lease standard also enhances financial transparency by redefining leases for lessees, by defining lease terms, payments, and modifications, and by demanding comprehensive disclosures about leasing activities. 

What Is the ASC 842 Operating Lease?

An operating lease refers to lease contracts that don’t meet one of the five criteria for a finance lease under ASC 842. Before ASC 842, these types of leases were solely expensed. The leased asset and liabilities associated with it were not included on the balance sheet. Now, an asset and liability must be recorded on the financial statements regardless of whether a lease is operating or finance.

What Is the GASB Standard on Leases?

The GASB standard on leases is GASB 87. This accounting standard’s aim is to make government financial statements more useful and comparable by requiring the reporting of lease liabilities, lessee and lessor leases under a single model, and notes about timing, significance, and purpose of a government’s leasing arrangements.

What Is Topic 842 of the Accounting Standards Update?

Topic 842 of the accounting standards update is a statement by the FASB that requires all leases longer than 12 months to be recorded as assets and liabilities on balance sheets. This update replaced GAAP lease accounting standard ASC 840.

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LeaseCrunch, the easiest lease accounting software on the market, is a comprehensive, cloud-based solution. LeaseCrunch helps organizations implement the new lease accounting standards, ASC 842, GASB 87 & 96, and IFRS 16. A simple but powerful tool, LeaseCrunch significantly reduces the time needed to transition, account for, and maintain leases.