Under ASC 842, an operating lease is a lease that does not meet the criteria for a finance lease. The lessor retains the significant risks and rewards of ownership.

The lessee recognizes a lease liability and a right-of-use asset on the balance sheet. The entity records lease expense in the income statement, typically as a single operating cost, based on the calculated interest and amortization.

Under other standards, the treatment may differ. In configurations where a lease is classified as Operating and off-balance treatment applies, the entity does not recognize a right-of-use asset or lease liability. The organization records lease payments directly as expense.