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If you are a lessee, you should record an operating lease on your company's balance sheet as a right-of-use asset and a lease liability. The right-of-use asset represents the lessee's right to use the leased asset, and it should be recorded at the present value of the lease payments over the lease term.

A lease will be recorded on the balance sheet as a right-of-use (ROU) asset and lease liability. The lease liability is the payment obligation over the term of the lease contract, while the ROU asset represents the control of the asset under the lease contract.

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.

Footnote disclosures are your company's plot; they tell the story of your company's events in a way that creates additional insights to readers.

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.

Operating Lease vs. Finance Lease They are recorded on the company's balance sheet; as a result, they can affect a company's financial ratios, such as debt-to-equity, return-on-assets, or solvency if companies use a significant amount of leased assets.4 However, there are several differences.

For each operating lease, lessees will disclose operating cash flows as the sum of the liability reduction recognized over the 12-month period?which is the difference between the cash the lessee pays and the expense recognized.

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.