Lease Classification Under ASC 842 (Part II)

This article is the second in a series of articles exploring the new guidance on accounting for leases (Accounting Standards Codification 842) issued by the Financial Accounting Standards Board (FASB) in February 2016. This article discusses the classification criteria of ASC 842 and highlights how classification could differ from the existing guidance in ASC 840.

ASC 842, similar to ASC 840, requires lessees and lessors to determine the classification of leases. Lessees will classify leases as either finance or operating leases, while lessors will classify leases as either sales-type, direct financing or operating leases. Under ASC 842, lessees and lessors will determine the classification of a lease at the “commencement date of the lease,” or the date that the lessor has made the leased asset available to the lessee.