ASC 842 lessee journal entries with examples

Searches for ASC 842 journal entries usually come from someone with a real lease to book. This guide gives the entries for an operating lease and a finance lease, using one example from commencement to the end of year 1, plus the full schedule for the operating lease.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

ASC 842 journal entries start the same for both lease types: Dr Right-of-use asset, Cr Lease liability, at the present value of the payments. For an operating lease, each period the lessee records a straight-line lease cost and reduces the right-of-use asset by the difference between that cost and the interest accreted on the liability. For a finance lease, it records interest on the liability and amortization of the asset separately. For a five-year lease of $100,000 a year at 5%, the starting balances are $432,947.67.

At a glance

Day 1, both types
Dr ROU asset, Cr Lease liability
Operating lease
Straight-line lease cost
ROU asset amortization
Cost less interest accretion
Finance lease
Interest plus amortization
Example liability
$432,948
Excel
Lease calculator
ASC 842 lessee journal entries with examplesDay 1, both types: Dr ROU asset, Cr Lease liability; Operating lease: Straight-line lease cost; ROU asset amortization: Cost less interest accretion; Finance lease: Interest plus amortization; Example liability: $432,948; Excel: Lease calculator.KEY FACTS AT A GLANCEASC 842 lessee journal entries with examplesDay 1, both typesDr ROU asset, Cr LeaseliabilityOperating leaseStraight-line lease costROU asset amortizationCost less interestaccretionFinance leaseInterest plusamortizationExample liability$432,948ExcelLease calculatorChecked against official sourcesTax BakersASC 842 lessee journal entries with examplesDay 1, both types: Dr ROU asset, Cr Lease liability; Operating lease: Straight-line lease cost; ROU asset amortization: Cost less interest accretion; Finance lease: Interest plus amortization; Example liability: $432,948; Excel: Lease calculator.KEY FACTS AT A GLANCEASC 842 lessee journal entrieswith examplesDay 1, both typesDr ROU asset, Cr Lease liabilityOperating leaseStraight-line lease costROU asset amortizationCost less interest accretionFinance leaseInterest plus amortizationExample liability$432,948ExcelLease calculatorChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

ASC 842 journal entries: the example lease

A company leases equipment for five years from January 1. It pays $100,000 at the end of each year. Its incremental borrowing rate is 5%. There are no initial direct costs or incentives. The present value of the payments, and so both the lease liability and the right-of-use asset, is $432,947.67.

What are the operating lease journal entries?

Operating lease: year 1 entries ($)Operating lease: year 1 entries ($)January 1: commencementDebitCreditDr Right-of-use asset432,947.67Cr Operating lease liability432,947.67December 31: lease cost and paymentDebitCreditDr Operating lease cost100,000.00Cr Cash100,000.00December 31: liability reduction and ROU amortizationDebitCreditDr Operating lease liability78,352.62Cr Right-of-use asset78,352.62
The lease cost is the cash paid here; the second entry reduces the liability and the asset together.

The operating lease cost is straight-line: $500,000 total payments over five years, $100,000 a year. The liability accretes interest at 5%, $21,647.38 in year 1, and falls by the payment. The right-of-use asset is amortized by the difference between the straight-line cost and the accretion: $100,000 less $21,647.38 = $78,352.62. With level payments in arrears, the asset and liability stay equal throughout.

YearOpening liabilityInterest accretionPaymentStraight-line lease costROU asset amortizationClosing liability and ROU asset
1432,94821,647100,000100,00078,353354,595
2354,59517,730100,000100,00082,270272,325
3272,32513,616100,000100,00086,384185,941
4185,9419,297100,000100,00090,70395,238
595,2384,762100,000100,00095,2380

What are the finance lease journal entries?

Finance lease: year 1 entries ($)Finance lease: year 1 entries ($)December 31: paymentDebitCreditDr Interest expense21,647.38Dr Finance lease liability78,352.62Cr Cash100,000.00December 31: amortizationDebitCreditDr Amortization expense86,589.53Cr Accumulated amortization, ROU asset86,589.53
Interest and amortization are recognized separately, so expense is higher in early years.

For a finance lease, the year 1 expense is $21,647 of interest plus $86,590 of straight-line amortization, $108,237 in total, falling each year as the interest declines.

When do the operating lease entries get more complex?

  • Payments in advance: the first payment is not part of the liability but is added to the right-of-use asset, so the asset and liability differ.
  • Initial direct costs and incentives: they adjust the right-of-use asset and are spread through the straight-line cost.
  • Rent escalations or free periods: the straight-line cost differs from the cash paid each year, and the asset amortization absorbs the difference.
  • Impairment: after an operating lease right-of-use asset is impaired, the remaining asset is amortized straight-line, so the cost is no longer a single straight-line amount.

Where do these amounts appear in the financial statements?

Operating lease cost sits in operating expenses; finance lease interest in interest expense and amortization in depreciation and amortization. Operating lease payments are operating cash flows; for finance leases, principal payments are financing cash flows and interest paid is an operating cash flow. Right-of-use assets and lease liabilities for operating and finance leases are presented or disclosed separately.

Can you generate these entries in Excel?

Yes. The Lease calculator (Excel) produces the finance lease schedule and journal entries, and its ASC 842 operating sheet produces the straight-line cost, the right-of-use asset amortization and the year 1 operating lease entries, including payments in advance, initial direct costs and incentives.

Where to go next

For which type applies, see operating vs finance lease classification; for the rate, see ASC 842 discount rates; and for the IFRS 16 version, IFRS 16 lessee accounting.

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Questions people ask

What is the journal entry for an operating lease under ASC 842?

At commencement, Dr Right-of-use asset, Cr Lease liability. Each period, Dr Operating lease cost, Cr Cash, then Dr Lease liability and Cr Right-of-use asset for the amortization.

How is the right-of-use asset amortized for an operating lease?

By the difference between the straight-line lease cost and the interest accreted on the lease liability.

What are the journal entries for a finance lease under ASC 842?

Dr Interest expense and Dr Lease liability, Cr Cash for each payment; Dr Amortization expense, Cr Accumulated amortization for the asset.

Why do the operating lease asset and liability stay equal?

With level payments in arrears and no direct costs or incentives, the asset amortization equals the liability reduction each year.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. FASB Accounting Standards Codification: Topic 842, Leases
  2. Financial Accounting Standards Board: Leases

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

ASC 842ASC 842 leases explainedASC 842Operating vs finance leases for lesseesIFRS 16IFRS 16 lessee accounting step by step

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This guide is general information. It is not tax or legal advice for your situation.