A guide to lease accounting

A guide to lease accounting under ASC 842 assists middle-market lessees and lessors in applying the lease guidance in Topic 842, Leases, of the Financial Accounting Standards Board’s Accounting Standards Codification (ASC).

Our comprehensive guide includes in-depth discussion and numerous examples on:

• The scope of ASC 842, whether a contract is within the scope of ASC 842 and the definition of a lease
• The steps entities should take in identifying the units of account present in a contract that includes a lease and allocating the contract consideration to those units of account
• The determination of whether the lease and non-lease components should be treated as separate units of account
• The key inputs used by entities in classifying and accounting for a lease, including the commencement date, the discount rate, the lease term and lease payments
• The lease classification criteria used by entities to classify a lease under ASC 842
• The application of the appropriate accounting model in ASC 842 to the lease (which depends on its classification)
• The initial and subsequent accounting by lessees for operating leases and finance leases, including specific issues such as evaluating right-of-use (ROU) assets for impairment, applying ASC 842 to leases denominated in a foreign currency and recognizing leases acquired in business combinations and asset acquisitions
• The initial and subsequent accounting by lessors for sales-type leases, direct financing leases and operating leases
• The seller-lessee’s evaluation of and accounting for sale-leaseback transactions
• The entity’s presentation of leases on its balance sheet, income statement and cash flows statement and the disclosures required of lessees and lessors under ASC 842

We also shine spotlights throughout our guide on a variety of middle market insights regarding ASC 842. In addition, we provide: (a) an easy-to-use table that summarizes the reassessment and remeasurement events that require reassessment or remeasurement of a particular aspect of ASC 842 (e.g., reassess lease classification or remeasure lease payments) and (b) a disclosure checklist.

The November 2025 edition of this guide has been updated for the following:

• Added discussion of

  • Transfer arrangements containing repurchase options and if they are within the scope of ASC 842 (see Section 2.5.1)
  • Additional factors to consider when calculating the rate implicit in the lease (see Section 5.2.1)
  • Accounting for costs incurred in a sale-leaseback transaction (see Section 10.8)
  • Presentation of lease expense for an operating lease when the ROU asset is impaired or when the operating lease is subject to abandonment accounting (see Section 11.2.1 and Section 11.2.2.

• Removed former Section 8.2.5.9 which discussed lease concessions granted as a result of the COVID-19 pandemic and removed discussion of the FASB Staff Q&A on lease concessions related to the COVID-19 pandemic (see Section 9.2.7)

• Updated Appendix A and Appendix E for the issuance of ASU 2025-03

• Other minor updates and clarifications

Our guide is a valuable tool for entities as they apply the guidance in ASC 842 to their leases.  Click here for information about the ASC 842 lease accounting services  provided by RSM.

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