ASC 842 brings most leases onto the balance sheet. Calculate the lease liability and right-of-use asset at commencement and generate the full monthly schedule for an operating or finance lease, including payment escalations, initial direct costs and incentives.
How it works
Measure the lease liability and right-of-use asset at commencement under ASC 842, and build the monthly schedule for an operating lease (single straight-line cost) or a finance lease (interest plus amortization).
Lease liability = PV of remaining lease payments at the discount rate
ROU asset = Lease liability + Initial direct costs + Prepaid rent − Incentives received
Operating: Lease cost = (Total payments + IDC − Incentives) ÷ Term, straight-line
ROU amortization = Lease cost − Interest on liability
Finance: Expense = Interest on liability + ROU asset ÷ TermCommon uses
- Lease commencement journal entries
- Monthly lease accounting and roll-forward schedules
- Audit support and lease footnote disclosures
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| Lease classification | Operating lease |
| Commencement month | 2027-01 |
| Monthly payment (year 1) | $12,500 |
| Annual payment escalation | 3% |
| Lease term | 60 months |
| Payment timing | Beginning of month (in advance) |
| Discount rate (annual) | 6.5% |
| Initial direct costs | $8,000 |
| Lease incentives received | $15,000 |
| Lease liability at commencement | $679,425 |
| Right-of-use asset | $672,425 |
| Total lease payments | $796,370 |
| Total lease cost over term | $789,370 |
| Year-1 lease expense | $157,874 |
| Current portion at commencement | $109,885 |
Operating lease: straight-line lease cost of $13,156.17 per month; ROU amortization is the plug between that cost and interest accretion. Monthly rate = annual discount rate ÷ 12.
Interpreting the results
- Exclude variable payments that do not depend on an index or rate; they are expensed as incurred.
- Private companies may elect the risk-free rate as the discount rate by class of underlying asset.
- Short-term leases of 12 months or less may be kept off the balance sheet under the practical expedient.
Frequently asked questions
How is the ASC 842 lease liability calculated?
The lease liability is the present value of the remaining lease payments, discounted at the rate implicit in the lease or, if that rate is not readily determinable, the lessee’s incremental borrowing rate.
What is the difference between operating and finance lease expense?
An operating lease records a single straight-line lease cost each period. A finance lease records interest on the liability plus amortization of the right-of-use asset, so total expense is higher in early years and lower in later years.
What goes into the right-of-use asset?
The right-of-use asset equals the lease liability plus any initial direct costs and lease payments made at or before commencement, minus lease incentives received.
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