This program provides a basic understanding of the new lease accounting rules pursuant to Accounting Standards Codification Topic 842 issued in February 2016. ASC 842 makes substantial changes to the accounting for leases primarily for the Lessee. A lease conveys the right to the Lessee to control the use of identified property, plant, or equipment for a period of time in exchange for consideration to the Lessor. For the Lessee, leases are either Finance leases or Operating leases.

The Lessee will record a right of use asset and a lease liability for all leases with a term greater than one year. A Finance lease must meet one of five requirements, four of which are similar to prior capital lease accounting. If a lease is not a Finance lease, it’s an operating lease. Most leases of equipment will be Finance leases and space leases will be Operating leases. For the Lessor, a lease is either an Operating lease, Direct Financing lease, or Sales-Type lease. In general, the accounting for the Lessor has not changed substantially from the prior rules. Accounting for leases from both the Lessee and Lessors perspective will be analyzed as well as lease straight-lining, advantages, and disadvantages of leasing, financial statement disclosure, and the financial impact of the new rules.