Lessees still classify each lease as finance or operating, and the distinction drives the income statement: a finance lease produces front-loaded expense (amortization plus interest), while an operating lease produces a single straight-line lease cost. Both sit on the balance sheet. A policy election exempts short-term leases (12 months or less, no purchase option reasonably certain of exercise).
ASC 842 also addresses lessor accounting, which follows a separate model largely carried forward from ASC 840, and it requires disclosures covering the nature of the leasing arrangements, the significant judgments made, and the amounts recognized.
Frequently asked questions
See this on your own facts
Bring a real lease accounting question. We'll walk the analysis with you and show you the citation trail.
Related
References: FASB ASC 842, Leases; IFRS 16, Leases (for comparison). This page is general information, not accounting advice for a specific entity.
Written and maintained by the Gaapio team of CPAs. Last reviewed August 2026.