Equipment Lease Calculator (ASC 842)
Lease or buy? This builds the lease liability and right-of-use asset the way ASC 842 wants, tells you whether it's a finance or operating lease, and compares the lease with paying cash.
Ben / Reviewed Sep 27, 2026 / v2.0.0
Results
Showing the numbers you calculated- Lease liability at commencement
- $50,151.86
- PV of all payments: $51,351.86
- Right-of-use asset
- $51,851.86
- Classification
- finance
- Interest + amortization
- Expense, first year
- $15,653.57
- Total lease payments
- $57,600.00
- $6,248.14 of financing cost
- Lease vs. buy (today's dollars)
- $8,658.34
- Leasing costs more
- Lease, present cost
- $51,851.86
- Buy, present cost
- $43,193.52
- Cash price − PV of the end value
Classification tests (any one = finance lease)
| Test | Result | This lease |
|---|---|---|
| Ownership transfers to you by the end | Not met | No |
| Purchase option you're reasonably certain to exercise | Not met | No option |
| Term is a major part (≥ 75%) of the economic life | Not met | 4.00 of 7 years (57.1%) |
| PV of payments is substantially all (≥ 90%) of the fair value | Met | $51,351.86 of $55,000.00 (93.4%) |
Lease liability schedule
Swipe the table sideways to see all 7 columns.
| # | Date | Beginning | Interest | Payment | Principal | Ending |
|---|---|---|---|---|---|---|
| 1 | 12/01/2026 | $50,151.86 | $250.76 | $1,200.00 | $949.24 | $49,202.62 |
| 2 | 01/01/2027 | $49,202.62 | $246.01 | $1,200.00 | $953.99 | $48,248.63 |
| 3 | 02/01/2027 | $48,248.63 | $241.24 | $1,200.00 | $958.76 | $47,289.87 |
| 4 | 03/01/2027 | $47,289.87 | $236.45 | $1,200.00 | $963.55 | $46,326.32 |
| 5 | 04/01/2027 | $46,326.32 | $231.63 | $1,200.00 | $968.37 | $45,357.95 |
| 6 | 05/01/2027 | $45,357.95 | $226.79 | $1,200.00 | $973.21 | $44,384.74 |
| 7 | 06/01/2027 | $44,384.74 | $221.92 | $1,200.00 | $978.08 | $43,406.66 |
| 8 | 07/01/2027 | $43,406.66 | $217.03 | $1,200.00 | $982.97 | $42,423.69 |
| 9 | 08/01/2027 | $42,423.69 | $212.12 | $1,200.00 | $987.88 | $41,435.81 |
| 10 | 09/01/2027 | $41,435.81 | $207.18 | $1,200.00 | $992.82 | $40,442.99 |
| 11 | 10/01/2027 | $40,442.99 | $202.21 | $1,200.00 | $997.79 | $39,445.20 |
| 12 | 11/01/2027 | $39,445.20 | $197.23 | $1,200.00 | $1,002.77 | $38,442.43 |
| 13 | 12/01/2027 | $38,442.43 | $192.21 | $1,200.00 | $1,007.79 | $37,434.64 |
| 14 | 01/01/2028 | $37,434.64 | $187.17 | $1,200.00 | $1,012.83 | $36,421.81 |
| 15 | 02/01/2028 | $36,421.81 | $182.11 | $1,200.00 | $1,017.89 | $35,403.92 |
| 16 | 03/01/2028 | $35,403.92 | $177.02 | $1,200.00 | $1,022.98 | $34,380.94 |
| 17 | 04/01/2028 | $34,380.94 | $171.90 | $1,200.00 | $1,028.10 | $33,352.84 |
| 18 | 05/01/2028 | $33,352.84 | $166.76 | $1,200.00 | $1,033.24 | $32,319.60 |
| 19 | 06/01/2028 | $32,319.60 | $161.60 | $1,200.00 | $1,038.40 | $31,281.20 |
| 20 | 07/01/2028 | $31,281.20 | $156.41 | $1,200.00 | $1,043.59 | $30,237.61 |
| 21 | 08/01/2028 | $30,237.61 | $151.19 | $1,200.00 | $1,048.81 | $29,188.80 |
| 22 | 09/01/2028 | $29,188.80 | $145.94 | $1,200.00 | $1,054.06 | $28,134.74 |
| 23 | 10/01/2028 | $28,134.74 | $140.67 | $1,200.00 | $1,059.33 | $27,075.41 |
| 24 | 11/01/2028 | $27,075.41 | $135.38 | $1,200.00 | $1,064.62 | $26,010.79 |
Expense and ROU asset by period
Swipe the table sideways to see all 7 columns.
| # | Period ends | Interest | ROU amortization | Total expense | ROU asset | Liability |
|---|---|---|---|---|---|---|
| 1 | 12/01/2026 | $250.76 | $1,080.25 | $1,331.01 | $50,771.61 | $49,202.62 |
| 2 | 01/01/2027 | $246.01 | $1,080.25 | $1,326.26 | $49,691.36 | $48,248.63 |
| 3 | 02/01/2027 | $241.24 | $1,080.25 | $1,321.49 | $48,611.11 | $47,289.87 |
| 4 | 03/01/2027 | $236.45 | $1,080.25 | $1,316.70 | $47,530.86 | $46,326.32 |
| 5 | 04/01/2027 | $231.63 | $1,080.25 | $1,311.88 | $46,450.61 | $45,357.95 |
| 6 | 05/01/2027 | $226.79 | $1,080.25 | $1,307.04 | $45,370.36 | $44,384.74 |
| 7 | 06/01/2027 | $221.92 | $1,080.25 | $1,302.17 | $44,290.11 | $43,406.66 |
| 8 | 07/01/2027 | $217.03 | $1,080.25 | $1,297.28 | $43,209.86 | $42,423.69 |
| 9 | 08/01/2027 | $212.12 | $1,080.25 | $1,292.37 | $42,129.61 | $41,435.81 |
| 10 | 09/01/2027 | $207.18 | $1,080.25 | $1,287.43 | $41,049.36 | $40,442.99 |
| 11 | 10/01/2027 | $202.21 | $1,080.25 | $1,282.46 | $39,969.11 | $39,445.20 |
| 12 | 11/01/2027 | $197.23 | $1,080.25 | $1,277.48 | $38,888.86 | $38,442.43 |
| 13 | 12/01/2027 | $192.21 | $1,080.25 | $1,272.46 | $37,808.61 | $37,434.64 |
| 14 | 01/01/2028 | $187.17 | $1,080.25 | $1,267.42 | $36,728.36 | $36,421.81 |
| 15 | 02/01/2028 | $182.11 | $1,080.25 | $1,262.36 | $35,648.11 | $35,403.92 |
| 16 | 03/01/2028 | $177.02 | $1,080.25 | $1,257.27 | $34,567.86 | $34,380.94 |
| 17 | 04/01/2028 | $171.90 | $1,080.25 | $1,252.15 | $33,487.61 | $33,352.84 |
| 18 | 05/01/2028 | $166.76 | $1,080.25 | $1,247.01 | $32,407.36 | $32,319.60 |
| 19 | 06/01/2028 | $161.60 | $1,080.25 | $1,241.85 | $31,327.11 | $31,281.20 |
| 20 | 07/01/2028 | $156.41 | $1,080.25 | $1,236.66 | $30,246.86 | $30,237.61 |
| 21 | 08/01/2028 | $151.19 | $1,080.25 | $1,231.44 | $29,166.61 | $29,188.80 |
| 22 | 09/01/2028 | $145.94 | $1,080.25 | $1,226.19 | $28,086.36 | $28,134.74 |
| 23 | 10/01/2028 | $140.67 | $1,080.25 | $1,220.92 | $27,006.11 | $27,075.41 |
| 24 | 11/01/2028 | $135.38 | $1,080.25 | $1,215.63 | $25,925.86 | $26,010.79 |
Journal entry illustration
Suggested entries for your records — adjust account names to your chart of accounts.
| Account | Debit | Credit |
|---|---|---|
| 11/01/2026 — Commencement: record the right-of-use asset and the lease liability | ||
| Right-of-use asset | $51,851.86 | |
| Lease liability | $50,151.86 | |
| Cash | $1,700.00 | |
| Totals | $51,851.86 | $51,851.86 |
| 12/01/2026 — Period 1 (finance lease): interest on the liability + straight-line amortization of the asset | ||
| Interest expense | $250.76 | |
| Lease liability | $949.24 | |
| Cash | $1,200.00 | |
| Amortization expense — right-of-use asset | $1,080.25 | |
| Accumulated amortization — right-of-use asset | $1,080.25 | |
| Totals | $2,280.25 | $2,280.25 |
What this does
Since ASC 842, almost every lease longer than a year goes on the balance sheet: a lease liability for the payments you owe and a right-of-use (ROU) asset for the equipment you get to use. This builds both, schedules them out, and runs the classification tests that decide finance vs. operating.
It also answers the business question — is leasing cheaper than buying? — in today's dollars, counting what the equipment is worth at the end.
How the math works
The liability is the present value of the payments you still owe at commencement:
PV = payment × annuity factor (beginning or end of period) + end-of-term amount × (1 + r)^−n liability = PV − any payment made on day 1
Then each period: interest = liability × rate, and the payment reduces the liability by the rest. The ROU asset starts at the liability plus day-1 payments and initial direct costs, minus incentives.
- Finance lease: interest expense on the liability + straight-line amortization of the asset. Expense is higher early.
- Operating lease: one straight-line lease cost every period. The asset amortizes by (lease cost − interest), so the total stays flat.
- Either way, the balance sheet shows the asset and the liability.
Which rate? Use the rate implicit in the lease if you can readily determine it (you usually can't as a lessee); otherwise your incremental borrowing rate — what you'd pay to borrow the same amount over the same term, secured.
Check my math: a worked example
$55,000 of equipment leased for 48 months at $1,200.00 (due at the start of each period), discounted at 6.00%.
- PV of all the lease payments: $51,351.86. The first $1,200.00 is paid on day 1, so the liability starts at $50,151.86.
- ROU asset: $51,851.86 (liability + day-1 payment + initial direct costs).
- Classification: finance lease — pv of payments is substantially all (≥ 90%) of the fair value.
- Expense: interest ($6,248.14 over the term) + $1,080.25 of amortization per period.
- Total payments $57,600.00 vs. PV $51,351.86: $6,248.14 of financing cost baked in.
Lease vs. buy in today's dollars: leasing costs $51,851.86, buying costs $43,193.52 (cash price minus the $15,000 you'd still own at the end, discounted). Buying comes out $8,658.34 ahead.
These numbers come straight from the calculator using its example inputs — if the math ever changes, this example changes with it.
Mistakes I see a lot
- Leaving leases off the balance sheet. Operating leases went on the balance sheet with ASC 842 — only short-term leases (12 months or less) can stay off, by election.
- Including the day-1 payment in the liability. It's already paid; it goes into the ROU asset.
- Putting the full residual value guarantee in the payments. Only the amount you expect to owe counts.
- Comparing lease payments to the purchase price without discounting or counting what the equipment is worth at the end.
Questions people ask
- Finance or operating — why does it matter?
- Both go on the balance sheet. The difference is the income statement: finance leases show interest + amortization (front-loaded), operating leases show one flat lease cost. It also changes where the cash payments land in the cash flow statement.
- What rate should a small business use?
- Your incremental borrowing rate — what a lender would charge you to borrow the equipment's cost over the lease term. Private companies can elect the risk-free rate (a Treasury rate for the same term), which gives a bigger liability.
- What about taxes?
- Tax treatment follows different rules (a true lease vs. a conditional sale). This is the book accounting and an economic lease-vs-buy comparison, not the tax answer.
- Does the spreadsheet recalculate?
- Yes. The PV, the liability schedule, the ROU/expense schedule, the classification tests, the lease-vs-buy comparison, and the journal entries are all formulas off the Inputs sheet.
Assumptions and limits
- Lessee accounting under ASC 842. Discount rate: the rate implicit in the lease if you can readily determine it; otherwise your incremental borrowing rate (private companies may elect a risk-free rate).
- Lease liability = present value of the lease payments not yet paid at commencement: the periodic payments, a purchase option you're reasonably certain to exercise, and the amount you expect to owe under a residual value guarantee. A payment made on day 1 isn't part of the liability.
- Right-of-use asset = liability + payments made at or before commencement + initial direct costs − lease incentives received.
- Classification uses the common policy thresholds: 75% of the economic life and 90% of fair value (the equipment's cash price). The specialized-asset test isn't evaluated.
- Finance lease: interest on the liability + straight-line amortization of the asset (over the useful life if you'll own it). Operating lease: one straight-line lease cost; the asset amortizes by the difference.
- Each period's interest is rounded to the cent and the last payment absorbs the rounding. Payments are equal periods apart (no day counts), with no variable payments, index escalations, or modifications.
- Lease vs. buy compares both options in today's dollars at the discount rate, crediting the equipment's value at the end of the term to whichever option leaves you owning it. Taxes aren't included.
Disclaimer: Educational and planning use only. Results depend on what you enter and may not match your lender, your tax return, or professional accounting treatment. Informational content + opinions only — not tax/legal advice.