Glossary · Finance operations
Leases (ASC 842)
Lab and office leases on the balance sheet as right-of-use assets and liabilities, with the tenant improvement allowance handled correctly.
Under ASC 842 nearly every lease longer than twelve months is recorded as a right-of-use asset and a lease liability measured at the present value of the remaining payments. Lab leases in Cambridge are long and expensive, so the balances are large relative to a clinical-stage balance sheet, and the discount rate, usually the company's incremental borrowing rate, is a judgment that needs support.
Tenant improvement allowances, rent holidays, escalation clauses, and options to extend all change the measurement. Allowances received from the landlord reduce the right-of-use asset; leasehold improvements the company funds are fixed assets depreciated over the shorter of their life and the lease term. Subleases, which are common when a company shrinks, add a second layer of accounting.
A lease schedule per agreement, updated at each modification, is the deliverable. Lease liabilities also matter for runway discussions because the remaining commitment is disclosed and frequently exceeds cash.
General explanation, not accounting, tax, or legal advice for any specific company. Standards and tax law change; the entry reflects my understanding as of September 2026.