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Lease disclosures under the new standard (ASC 842) are intended to give financial statement users a better understanding of an entity's leasing activities, helping them assess the amount, timing, and uncertainty of cash flows arising from leases. Learn more about some common pitfalls and ways to get disclosure right.

Lease payments are considered operating expenses and are expensed on the income statement. The firm does not own the asset and, therefore, it does not show up on the balance sheet, and the firm does not assess any depreciation. for the asset.

Upon adoption of ASC 842, almost all leases will be capitalized on the balance sheet. However, you will still need to classify them as either finance leases (previously called capital leases) or as operating leases using the lease classification test so that you can apply the correct accounting treatment.

Assets being leased are not recorded on the company's balance sheet; they are expensed on the income statement. So, they affect both operating and net income.

Lease payments. As the company receives lease invoices from the lessor, record a portion of each invoice as interest expense and use the remainder to reduce the balance in the capital lease liability account. Eventually, this means that the balance in the capital lease liability account should be brought down to zero.

Noncash expenses are those expenses that are recorded in the income statement but do not involve an actual cash transaction. A common example of noncash expense is depreciation. When the amount of depreciation is debited in the income statement, the amount of net profit is lowered yet there is no cash flow.

A non-operating expense is a cost that isn't directly related to core business operations. Examples of non-operating expenses are interest payments on debt, restructuring costs, inventory write-offs and payments to settle lawsuits.