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A quick and helpful ASC 842 guide

Feb 01, 2023

ASC 842, the standard that requires companies to record leases on balance sheets as an asset and a liability, is officially here. For all December 31, 2022, year-ends and beyond, your generally accepted accounting principles (GAAP) financial statements must comply with this new leasing standard.

What is ASC 842 lease accounting in a nutshell?

ASC 842 lease accounting requires booking a liability for the present value of the sum of future lease payments. It also requires booking a right-of-use asset representing the asset itself.

Sometimes the liability and asset will be an identical number, but many times there are adjustments required.

ASC 842 lease accounting example

One commonly used example is that — before this standard came into effect — if you were to look at the balance sheet of major airlines, planes were not listed.     

That’s because they leased all of their planes via operating leases. So, there was no asset recorded and no liability recorded, even though they were committed to making future monthly lease payments for millions of dollars.

Now (after several years, deferrals and numerous discussions), the standard is here, and the issuers of GAAP financial statements must follow it.

ASC 842 guide

Below is a guide of six articles that can help you with your implementation:

  1. The basics: Getting started
  2. Determining what is considered a lease (it may surprise you)
  3. Understanding the practical expedients available to make implementation easier
  4. A walkthrough/example on the accounting for an operating lease under ASC 842
  5. Top 10 lease accounting FAQs that we are seeing with implementations
  6. Examples of how the new standard can impact your existing debt covenants

These articles can help you prepare accurate financial statements that comply with the new standard.

How Wipfli can help

At Wipfli, our knowledgeable accounting team has you covered. We can assist with any stage in the process whether it’s identifying your leases, determining the appropriate discount rate and lease term or working on disclosures.

Contact us today for the support you need with your lease accounting.

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Author(s)

Preston Tomlinson, CPA
Senior Manager
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