Enter the lease economics — get classification, liability & ROU measurement, a 12-month schedule, and the commencement journal entries. All computation happens in your browser.
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ASC 842 put nearly every lease on the balance sheet, but the mechanics still decide the income statement. Classification comes first: the five tests of ASC 842-10-25-2 — ownership transfer, a purchase option reasonably certain of exercise, major part of economic life, present value at substantially all of fair value, and specialized-asset use. One test met means finance treatment, with interest expense and ROU amortization presented separately and front-loaded total cost. None met means operating treatment and a single straight-line lease cost. The old bright lines (75% of life, 90% of value) survive informally as reasonable thresholds, but the standard leaves them to judgment, and your policy should say what you use.
Measurement is where spreadsheets go wrong. The lease liability is the present value of remaining payments at the discount rate — implicit rate if readily determinable, which it almost never is for a lessee, otherwise the incremental borrowing rate. Monthly discounting with payments in arrears versus advance changes the liability; escalators, purchase options, and probable renewal periods change the payment stream itself. The ROU asset then starts from the liability, adds prepaid rent and initial direct costs, and subtracts incentives. From commencement, a finance lease amortizes like a loan plus a depreciating asset; an operating lease holds cost flat and lets the ROU amortization absorb the difference.
The commencement journal entry — and the month-one entry after it — is where auditors test whether the model actually ties to the ledger, and it is the request preparers most often cannot produce quickly.
This calculator takes the lease economics — payments, escalation, term, rate, options — and returns the classification with the reasoning, the liability and ROU measurement, a twelve-month amortization schedule with full-term totals, and the commencement and month-one journal entries ready to book. Everything computes in your browser; your lease terms are never stored unless you save them.
Apply the five criteria of ASC 842-10-25-2: ownership transfer, a purchase option reasonably certain to be exercised, lease term for the major part of the asset's economic life, present value of payments at substantially all of the asset's fair value, or a specialized asset with no alternative use. Meeting any one makes it a finance lease; otherwise it is operating.
As the present value of the remaining lease payments, discounted at the rate implicit in the lease if readily determinable — otherwise the lessee's incremental borrowing rate. Private companies may elect the risk-free rate by class of underlying asset.
The initial lease liability, plus lease payments made at or before commencement and initial direct costs, minus lease incentives received. The ROU asset rarely equals the liability exactly for real leases.
A finance lease produces front-loaded expense: interest on the liability plus straight-line amortization of the ROU asset, presented separately. An operating lease produces a single straight-line lease cost, with the ROU asset amortized as the plug between straight-line cost and interest accretion.
A lessee may elect, by class of underlying asset, not to recognize ROU assets and liabilities for leases with a term of 12 months or less that have no purchase option reasonably certain of exercise. Payments are then expensed straight-line over the term.