What is the new U.S. lease accounting standard that requires operating leases to be reported on the balance sheet?

• A. ASC 840
• B. ASC 850
• C. ASC 815
• D. ASC 842

Answer: (D)

ASC 842 requires operating leases to be shown on the balance sheet, not just in footnotes. This standard recognizes a right-of-use asset—the lessee’s right to use the leased asset over the term—and a lease liability—the obligation to make lease payments—beginning at the lease’s start. The result is a clearer picture of a company’s financial obligations and resources, improving transparency and comparability across firms. Short-term leases (typically 12 months or less) may be exempt from balance sheet recognition, but most longer-term operating leases are brought onto the balance sheet under this standard. The old guidance allowed operating leases to be kept off the balance sheet, so it didn’t reflect the full extent of lease commitments. This is why the correct reference is ASC 842.