What is ASC 842? A Simple Guide for Finance Teams
ASC 842 is the lease accounting standard issued by the Financial Accounting Standards Board (FASB) that requires companies to record most leases on the balance sheet. It replaced the older ASC 840 standard and applies to both public and private companies in the U.S.
If you manage real estate or equipment leases, ASC 842 is likely affecting your financial reporting, internal processes, and software needs.
Why Was ASC 842 Introduced?
Under ASC 840, many leases were kept off the balance sheet, making it harder for investors and auditors to understand a company’s true liabilities. ASC 842 was introduced to bring more transparency and consistency to lease reporting by requiring that nearly all leases be accounted for as assets and liabilities.
What Does ASC 842 Require?
ASC 842 requires lessees to:
- Recognize a Right-of-Use (ROU) asset and a lease liability for both operating and finance leases
- Classify leases as either operating or finance, based on specific criteria
- Provide detailed lease disclosures in financial statements
Lessor accounting remains largely unchanged from ASC 840, but there are additional disclosure requirements.
Who Needs to Comply?
- Public companies: Required to comply as of 2019
- Private companies and nonprofits: Required to comply as of 2022
If your organization holds long-term real estate or equipment leases, ASC 842 likely applies to you.
What Happens If You Don’t Comply?
Noncompliance can lead to audit challenges, inaccurate financials, and potential penalties. More importantly, it affects decision-making, valuations, and investor trust.
How Spacebase Helps
Spacebase simplifies ASC 842 compliance with built-in accounting logic and automation. Our platform:
- Automatically classifies leases as operating or finance
- Calculates ROU assets and lease liabilities
- Generates amortization schedules and journal entries
- Produces audit-ready reports
It’s designed for teams that want to reduce manual work, avoid compliance errors, and speed up month-end close.
Explore More Lease Accounting Resources
Looking to dive deeper into lease accounting best practices? Check out these helpful guides:
Brooke Colglazier
Marketing Manager