If your business leases office space, equipment, or vehicles, ASC 842 changed how those leases show up in your financial statements—and auditors now expect to see it done correctly. Here’s the plain-English version.
What it is and how it’s different. ASC 842 is the lease accounting standard issued by the Financial Accounting Standards Board (FASB) under ASU 2016-02 in February 2016, replacing the prior standard, ASC 840. Its defining change is that lessees must now record nearly all leases on the balance sheet. For each lease, a company recognizes a right-of-use (ROU) asset—its right to use the leased item—and a corresponding lease liability measured at the present value of the remaining lease payments. Under the old ASC 840 rules, operating leases were kept off the balance sheet and disclosed only in the footnotes, which understated the true scale of a company’s lease obligations. ASC 842 brings those commitments into full view.
Who it affects and when it took effect. The standard affects virtually any organization that leases assets—real estate, equipment, vehicles, and more—and prepares financial statements under U.S. GAAP, whether public or private. Public companies adopted ASC 842 first, for fiscal years beginning after December 15, 2018 (January 1, 2019 for calendar-year companies). After two FASB deferrals, private companies and nonprofit organizations became subject to it for fiscal years beginning after December 15, 2021 (January 1, 2022 for calendar-year entities). If you have leases and report under GAAP, ASC 842 already applies to you.
What compliance looks like in practice. Day to day, ASC 842 means identifying every lease, calculating the present value of the payments, recording the ROU asset and lease liability, and maintaining an amortization schedule that updates each period and feeds your journal entries. It’s a common stumbling block during audits—especially for growing companies adopting it for the first time. A well-built schedule does most of the heavy lifting, which is exactly why we put one together for you.
ASC 842 at a glance
| Issued by | FASB — ASU 2016-02, February 2016 (replaced ASC 840) |
| Core change | Operating leases now recorded on the balance sheet as a right-of-use asset and lease liability |
| Public companies | Fiscal years beginning after Dec 15, 2018 (Jan 1, 2019 calendar-year) |
| Private & nonprofit | Fiscal years beginning after Dec 15, 2021 (Jan 1, 2022 calendar-year) |
| Who’s affected | Any GAAP-reporting lessee with real estate, equipment, or vehicle leases |
ASC 842 Lease Amortization Schedule — Excel Template
A ready-to-use Excel schedule for calculating your right-of-use asset and lease liability under ASC 842. Enter your email and we’ll send it straight to your inbox.
Why it matters for growing businesses
Beyond compliance, getting ASC 842 right affects how lenders, investors, and acquirers read your balance sheet. Bringing lease obligations on-balance-sheet changes key figures and ratios, so clean, well-documented lease accounting signals a finance function that can be trusted—and removes a frequent source of audit friction. If you’re adopting ASC 842 for the first time, preparing for an audit, or simply want a second set of expert eyes on your lease schedules, that’s the kind of technical accounting work we handle every day.
This article is provided for general informational purposes only and reflects the standard as summarized from the sources below as of its publication. It is not accounting, tax, or legal advice. Consult a qualified professional before applying ASC 842 to your specific situation.
Sources: Cherry Bekaert — ASC 842 Effective Date for Private Companies · RSM — Leases: Overview of ASC 842 · Deloitte — FASB Defers Effective Dates of Leasing Standard