What is Lease Accounting?

Lease accounting refers to the accounting procedures required to record and report leases in a company's financial statements. It includes classifying leases as either operating or finance/capital leases and then applying the appropriate accounting treatment based on the classification. The goal is to ensure that leases are accurately reflected on the balance sheet and income statement, providing a transparent view of a company's assets and liabilities related to leasing activities. Updated accounting standards (such as ASC 842 and IFRS 16) require lessees to recognize most leases on their balance sheets.