Short-Term Finance Lease Liabilities

Category

Balance Sheet

Units

Currency

US-GAAP elements

FinanceLeaseLiabilityCurrentCapitalLeaseObligationsCurrent

Reference

ASC 842, Leases; Regulation S-X Rule 5-02.22 (Bonds, mortgages and other long-term debt, including capitalized leases)

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Short-term finance lease liabilities are the portion of a company's finance lease obligations that is due within the next year. A finance lease is one in which the lessee effectively acquires the use of an asset for most of its life or value, so the arrangement is accounted for much like buying the asset with borrowed money.

The liability is the present value of the remaining lease payments, and the current portion is the principal expected to be paid over the next twelve months. Before ASC 842, these were called capital leases.

Lease accounting follows ASC 842, effective for public companies for fiscal years beginning after December 15, 2018. A lessee records a right-of-use asset and a lease liability for both finance and operating leases, but the income statement treatment differs: a finance lease produces separate amortization and interest expense, much like a financed asset purchase. Regulation S-X Rule 5-02.22 groups capitalized leases with bonds, mortgages, and other long-term debt, and the part due within a year is reported among current liabilities. In XBRL the current portion is tagged FinanceLeaseLiabilityCurrent, and filings before ASC 842 used CapitalLeaseObligationsCurrent.

Many companies do not show this amount on its own line. It may be included in current portion of long-term debt, in other current liabilities, or in accrued liabilities, with the detail only in the leases footnote. The footnote also gives the maturity schedule of undiscounted payments and the weighted average discount rate.

Because finance lease obligations are debt-like, they are usually included in short-term debt, total debt, and net debt, and in the debt side of enterprise value. The payments split into interest and principal: principal repayments appear in financing activities on the cash flow statement, while the interest portion is classified under the company's policy for interest paid, usually operating. That means finance leases can make operating cash flow look stronger than it would for an equivalent operating lease.