Accounting for Leases Under ASC 842

Accounting for leases can be complex. Make sure you get it right using BDO's "Blueprint" publication.

Download the Blueprint

By accessing the FASB documents on this site, you accept and agree to these FASB terms and the website terms as applied to your use of this site or any FASB licensed documents.

BDO's Professional Practice publication (Blueprint) guides professionals through the application of the FASB’s Accounting Standards Codification Topic 842, Leases (“ASC 842” or “leases guidance”). Summarizing key aspects of ASC 842, this Blueprint helps all companies, public or private, understand and comply with the leases guidance.

This Blueprint was updated in January 2025 to add BDO’s views on several practice issues. Significant changes to this update are listed in Appendix B.

This Blueprint includes practical examples and interpretive guidance to assist companies and practitioners in their continued application of ASC 842. Divided into chapters focused on key aspects of the leases guidance, this Blueprint is organized in the order an entity applies ASC 842 and the corresponding questions the entity needs to address.

Explore the chapters below!

Scope of ASC 842
First things first: An entity needs to determine whether a contract is within the scope of ASC 842, which entails understanding the scope exceptions and the interaction with other U.S. GAAP. Then the entity can proceed with examining other key aspects of the leases guidance.

Identifying a Lease
If a contract is in scope, then the next step is to determine whether the contract is or contains a lease (that is, whether ASC 842 or other U.S. GAAP applies). This chapter discusses the important nuances in that process. 

Identifying and Separating Components
Even if a contract contains a lease, it does not mean the whole contract is accounted under ASC 842. Identifying the units of account, or components, in that contract is important. The leases guidance generally applies only to lease components. 

Lease Classification and Key Terms
To properly apply ASC 842, it’s important to understand key terms, such as the commencement date, lease term, lease payments, discount rate and more. These terms are used to classify a lease and to apply other aspects of ASC 842.

Accounting for Leases — Lessees
Once a lessee has determined lease classification, the lease generally is recognized and measured on balance sheet at the commencement date. However, there are also important “day 2” requirements to consider.

Accounting for Leases — Lessors
The accounting by lessors varies depending on lease classification. Key aspects of lessor accounting are also aligned with the revenue standard. The accounting for lessors is all in the details.

Other Topics
This chapter discusses specific transactions (such as sale and leaseback transactions, and subleases) and the interaction between lease accounting and other areas of U.S. GAAP, including the accounting for leases in a business combination and income taxes.

Presentation and Disclosures
ASC 842 includes enhanced disclosure requirements, including an overall disclosure objective and expanded disclosure requirements for leases. The more extensive the entity’s leasing activities, the more comprehensive the disclosures are expected to be.

Adopting ASC 842
Most companies have adopted ASC 842 by now, including related amendments. But some private companies may still have to adopt Accounting Standards Update 2023-01, Leases (Topic 842) — Common Control Arrangements.  

Download the entire accounting for leases under ASC 842 Blueprint Series

Download