The mechanical part — amortizing the right-of-use asset, building the schedule — is not where the time goes. The defensible part is the reasoning behind each judgment call: the lease term, the discount rate, whether a renewal option is reasonably certain of exercise, and whether a contract that is not called a lease contains one.
A policy election, made by class of underlying asset, exempts short-term leases — those with a lease term of 12 months or less that do not include a purchase option the lessee is reasonably certain to exercise — from balance-sheet recognition. The test runs on the lease term as defined, so a 12-month lease with a renewal that is reasonably certain of exercise is not short-term.
ASC 842 also requires qualitative and quantitative disclosures that explain the significant judgments applied. Getting the classification right is necessary; being able to show why, months later, is what an auditor actually tests.
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References: FASB ASC 842, Leases. 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.