What is FASB Topic 840?
ASC 840 refers to the previous lease accounting standard for private and public companies under US GAAP. ASC 842 is replacing the former standard. Public calendar-year companies had until January 1, 2019, to adopt the new standard. Calendar-year private companies were required to transition to ASC 842 by January 1, 2022.
What is the big difference between ASC 840 and ASC 842?
Under ASC 840, leases were classified as either capital or operating. This classification impacted the effect the contract had on the company’s financial statements. Capital leases resulted in a liability that was recorded on a company’s balance sheet, whereas operating leases did not impact the balance sheet.
Under ASC 842, future lease payments for operating leases are required to be recognized on the balance sheet. Leases are now classified as finance or operating, rather than capital or operating.