The U.S. GAAP accounting standard (effective for public companies since 2019) requiring lessees to recognize most leases — including operating leases — on the balance sheet as right-of-use assets and lease liabilities.
ASC 842 replaced the previous standard (ASC 840) and fundamentally changed how companies account for leases. Under the old standard, operating leases were off-balance-sheet commitments disclosed only in footnotes. Under ASC 842, a lessee must record a right-of-use (ROU) asset and a corresponding lease liability at the present value of future lease payments for leases with terms exceeding 12 months. This materially affects reported assets, liabilities, and financial ratios for companies with significant real estate portfolios. Accurate lease abstraction — capturing term, rent schedule, renewal options, and modification dates — is essential for ASC 842 compliance calculations.
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