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Businesses must account for operating leases as assets and liabilities for assets leased for more than 12 months. This standard makes their balance sheet a more realistic representation of the company's worth and obligations regarding leases.

Finance lease and operating lease liabilities should be presented separately from each other and from other liabilities on the balance sheet or disclosed in the notes to the financial statements along with the balance sheet line items in which those liabilities are included.

A lease liability is the financial obligation for the payments required by a lease, discounted to present value. Under ASC 842, IFRS 16, and GASB 87, the finance lease liability is calculated as the present value of the lease payments remaining over the lease term.

The lease liability represents the obligation to make lease payments and is measured at the present value of future lease payments. Once we have gathered our information, i.e., we know the lease term, the lease payment and the discount rate, we simply discount the liability over the lease term, using the discount rate.

From a lease accounting perspective, a capital lease is treated as if the lessee has purchased the asset using debt financing. The asset and the associated lease liability are recorded on the lessee's balance sheet. Each lease payment is allocated between the reduction of the lease liability and interest expense.

The new lease standard increases the scope and complexity of the financial statement footnote disclosure with additional requirements for both quantitative and qualitative disclosures. While providing useful information, using a spreadsheet to create these disclosures becomes far more difficult than before.

The lessee only pays for the use of the asset, and does not record it as an asset or a liability on the balance sheet. The lease payments are treated as operating expenses, and are reported as cash outflows from operating activities on the cash flow statement.

A capital lease payment includes interest and principal. The interest portion of the payment is included in the Cash Flows From Operating Activities section as a cash outflow. The principal portion of the payment is included in the Cash Flows From Financing Activities section as a cash outflow.