Lease accounting terms, defined
The vocabulary of ASC 842, IFRS 16 and GASB 87 — each term defined plainly, cited to the codification, and linked to the concepts it depends on.
Discount rate
The discount rate is the rate used to present-value the lease payments — the rate implicit in the lease if determinable, otherwise the incremental borrowing rate (or, for some entities, a risk-free rate).
Read definition →Initial direct costs
Initial direct costs are incremental costs of obtaining a lease that would not have been incurred if the lease had not been obtained — they are added to the right-of-use asset.
Read definition →Lease incentive
A lease incentive is a payment made by the lessor to or on behalf of the lessee, such as a tenant improvement allowance or rent-free period, that reduces the right-of-use asset.
Read definition →Present value of lease payments
The present value of lease payments is the sum of each future payment divided by (1 + periodic rate) raised to the number of periods until that payment.
Read definition →Short-term lease exemption
A lessee may elect not to capitalise leases with a term of 12 months or less and no reasonably-certain purchase option, expensing the payments straight-line instead.
Read definition →From definition to a live schedule
Every term here becomes a number in the calculator — the right-of-use asset, the lease liability, the discount rate. Enter a lease and watch them compute.