Why doesn't the cash outlay match the lease expense?
Under ASC 842 lease accounting, cash outlays no longer match lease expenses on the P&L because lease expenses are calculated on a straight-line basis and recorded as debits to operating or amortization expenses with credits to the right-of-use (ROU) asset, while cash payments reduce lease liabilities, causing timing and recognition differences between cash flow and expense amounts.
Why doesn't the cash outlay match the lease expense?
Per ASC 842, cash outlay and lease expenses no longer match due to the calculations requiring straight-line expenses
Understanding Journal Entries Under ASC842
With previous lease accounting standards, it was customary for users of the financial statements to tie out the cash outlay with the lease expense line item on the P&L. Under AS 842 accounting guidance, these line items are no longer matching entries due to the calculations requiring straight-line expenses.
ASC 842 Operating Lease
A credit to the Cash/AP Clearing account now corresponds with a debit to the Lease Liability:
| Debit | LT Lease Liability |
| Debit | ST Lease Liability |
| Credit | Cash/AP Clearing |
The lease expense amount will now match the credit to the ROU Asset:
| Debit | Operating Lease Expense |
| Credit | ROU Asset |
| Credit | LT Lease Liability |
ASC 842 Finance Lease
A credit to the Cash/AP Clearing account now corresponds with a debit to the Lease Liability:
| Debit | LT Lease Liability |
| Debit | ST Lease Liability |
| Credit | Cash/AP Clearing |
The expense amount will now match the credit to the ROU Asset:
| Debit | Amortization Expense |
| Credit | ROU Asset |
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