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From a lease accounting perspective, a capital lease is treated as if the lessee has purchased the asset using debt financing. The asset and the associated lease liability are recorded on the lessee's balance sheet. Each lease payment is allocated between the reduction of the lease liability and interest expense.

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.

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.

What Is ASC 842? ASC 842 is a lease accounting standard by the Financial Accounting Standards Board (FASB), requiring all leases longer than 12 months to be reflected on a company's balance sheet. This enhances financial transparency by giving a clear picture of an entity's lease obligations.

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.

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.