Explain the differences between the accounting treatment for leases under ASC 842 and the previous lease accounting standard, providing specific examples.

The accounting treatment for leases drastically changed with the adoption of ASC 842, which replaced the previous standard, ASC 840. Here's a breakdown of the key differences: 1. Lease Classification: ASC 840: Distinguishes between "capital leases" and "operating leases." Only capital leases were recognized on the balance sheet. ASC 842: Introduces a single model where all leases with a term of more than one year are recognized on the balance sheet. Leases are classified as either finance leases or operating leases based on their substance, but both types are treated as on-balance sheet items. Example: ASC 840: A company leases a piece of equipment for 5 years, with the lease meeting the criteria for a capital lease. This lease would be recorded on the balance sheet as an asset and a liability. A company leasing an office building for 10 years that did not meet the capital lease criteria would be recorded as an operating lease, only recognized in the income statement. ASC 842: The same equipment and office building leases would both be recorded on the balance sh....