Tell about the lease accounting and its treatment in financial statement.

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Accepted Answer

Lease accounting involves recording lease agreements on the financial statements in accordance with accounting standards.

Lease accounting requires classifying leases as either operating leases or finance leases.
Operating leases are treated as off-balance sheet items, while finance leases are recorded as assets and liabilities on the balance sheet.
Lease payments for operating leases are expensed on the income statement, while finance leases involve depreciation of the leased asset and interest expense.
The new lease accounting standard, ASC 842, requires lessees to recognize most leases on the balance sheet.
Disclosure requirements for lease accounting include details about lease terms, future lease payments, and lease incentives.
Lease accounting impacts financial ratios such as leverage and return on assets.
Example: Company A leases office space under an operating lease and records the lease payments as rent expense on the income statement.
Example: Company B leases equipment under a finance lease and records the leased equipment as an asset and corresponding liability on the balance sheet.

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