ASC 842
ASC 842 Leases is the US GAAP standard for lease accounting. The FASB issued it in February 2016 through ASU 2016-02. Public business entities applied it for fiscal years beginning after December 15, 2018; other entities later.
Leasing
Explanation
ASC 842 requires lessees to recognize a right-of-use asset and a lease liability for nearly all leases longer than 12 months. Lessees classify leases as either finance or operating leases. Operating leases result in a single, generally straight-line lease cost; finance leases result in separate interest and amortization expense.
For lessors, ASC 842 distinguishes three categories: sales-type, direct financing, and operating leases. The lessor model is largely carried over from the previous standard, with changes in areas such as collectibility, selling profit, and variable payments.
Its international counterpart is IFRS 16. The two standards differ in several areas, especially lessee classification.
Why It Matters
For US companies, ASC 842 affects balance sheets, income statements, and debt covenants. For lessors with bundled equipment and service contracts, it interacts directly with ASC 606. In SAP, lessor scenarios can be handled in SAP Revenue Accounting and Reporting (RAR), and lessee accounting in SAP Contract and Lease Management (CLM).
Related Terms
IFRS 16 · Sales-Type Lease · Operating Lease · Lessor / Lessee · ASC 606 · Lease Term · Direct Financing Lease
Related Solution:
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