In short
For a lessee, an operating lease is any lease that doesn't meet a finance lease criterion. The lessee still recognizes a right-of-use asset and a lease liability, but reports a single straight-line lease cost in the income statement.
Key takeaways
- The liability is the present value of the lease payments, as for a finance lease.
- The right-of-use asset is reduced by a plug figure so total expense is level each year.
- Cash payments are operating cash outflows.
Where it's tested
FAR: Leases — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under ASC 842, how does a lessee's accounting for an operating lease differ from a finance lease in subsequent periods?