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Initial journal entries for both operating lease and finance leases will be the same: Credit Lease Liability?Present value of all future lease payment (discount rate used in calculation is your incremental borrowing rate ?IBR?).

The new lease standard increases the scope and complexity of the financial statement footnote disclosure with additional requirements for both quantitative and qualitative disclosures. While providing useful information, using a spreadsheet to create these disclosures becomes far more difficult than before.

Existing operating leases with terms extending beyond 12 months will be included on the balance sheet effective January 1, 2022, the date of required adoption. Existing capital leases will continue to be included with property, plant, and equipment, and will be amortized over the remaining life of the lease.

ASC 842, or Topic 842, is the new lease accounting standard issued by the FASB and governs how entities record the financial impact of their lease agreements. Among other changes, it requires all public and private entities reporting under US GAAP to record the vast majority of their leases to the balance sheet.

In operating lease accounting, the lessor reports the leased asset on the balance sheet and the interest revenue and the asset depreciation on the income statement. The lessor reports the lease payment as the cash inflow on its cash flow statement.

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.

A lessee should provide narrative disclosure about the options that are recognized as part of its right-of-use assets and lease liabilities and those that are not. 4. The existence and terms and conditions of residual value guarantees provided by the lessee.