Current portion of lease liabilities - with examples


Understanding lease liabilities: a practical guide for businesses
Lease liabilities are a regular part of doing business. If your company rents office space, equipment, or vehicles, you're probably dealing with leases. But when it comes to accounting, many businesses get confused.
Questions like “Is a lease a liability or asset?”, “What are lease liabilities?”, or “How do I calculate the current portion of lease liabilities?” come up often. This guide will help you answer these questions and show how tools like SOFT4Lessee can make lease management easier.
What are lease liabilities?
In financial reporting, lease liabilities represent the amount a business still owes for its active leases. This includes future lease payments, discounted to present value, and is reported as a liability on the balance sheet.
Is a lease a liability? Yes, in most cases, a lease is a liability. Under accounting rules like IFRS 16 and ASC 842, if you sign a lease that gives you control over an asset for a period of time, you're expected to report a lease liability. You must also recognize the right-of-use (ROU) asset, which represents your right to use that leased asset.
So, if you’re wondering “Is a lease a liability or asset?”, the answer is simple: it’s both.
Accounting standards like IFRS 16, ASC 842, and AASB 16 require companies to recognize these liabilities clearly. This ensures that financial statements show a full and accurate picture of what the business owes - not just loans or trade payables, but also leases.
Why lease liabilities matter? Lease liabilities affect several parts of financial reporting:
Balance sheet: Shows total lease liabilities and separates them into current and non-current portions.
Income statement: Includes interest expense related to the lease liability.
Cash flow statement: Reflects lease payments (especially for finance leases) in the financing section.
This information helps investors, auditors, and stakeholders understand your company’s debt position, cash flow commitments, and asset usage.
Operating vs. finance leases
There are two main types of leases: operating leases and finance leases.
Finance leases are treated more like purchases. You record both a liability and an asset on your balance sheet.
Operating leases used to be treated off-balance sheet, but under IFRS 16 and ASC 842, that’s changed. Now, most operating leases also create lease liabilities.
SOFT4Lessee helps classify each lease type correctly and keeps your reporting in line with international accounting standards.
What are lease liabilities in financial reporting?
Current vs. non-current lease liabilities
To improve transparency, lease liabilities are split into:
Current portion of lease liabilities. These are the payments due within the next 12 months. They appear under “current liabilities” and give a short-term view of obligations
Non-current lease liabilities. These are the payments due beyond 12 months. They go under “non-current liabilities” and show long-term commitments
This breakdown is essential. It tells how much money the business will need in the near future to meet its lease obligations, and how much is spread out over time.
Let’s say you have $100,000 in total lease liabilities. If $30,000 is due in the next year and $70,000 after that, your financial statements will show:
Current portion of lease liabilities: $30,000
Non-current lease liabilities: $70,000
This structure helps external parties quickly see whether your business has enough liquidity to meet upcoming payments.
What about operating leases?
Under previous rules, many operating leases were kept off the balance sheet. But now, under IFRS 16 and ASC 842, most operating leases must be reported just like finance leases.
This means even if your lease is for office space or equipment that you don’t plan to buy, you’ll still need to:
Record a lease liability
Record a right-of-use (ROU) asset
Split the liability into current and non-current portions
The only exceptions are short-term leases (12 months or less) or low-value assets, and even then, some companies choose to recognize them for consistency.
Lease liabilities example: A simple case
Understanding how lease liabilities work is easier when you see a lease liabilities example. Let’s walk through a basic lease scenario step by step. This helps explain how lease liabilities are recorded, how the current portion is calculated, and what happens on the balance sheet.
Scenario: equipment lease
Suppose your company leases a piece of manufacturing equipment. Here are the key terms of the lease:
Lease term: 3 years
Monthly payment: $3,000
Payment schedule: First payment due at the end of each month
Discount rate: 5% (used to calculate the present value of lease payments)
The total lease payments over 3 years will be:
3 years × 12 months = 36 payments
36 payments × $3,000 = $108,000
Step 1: Initial recognition of the lease
At the start of the lease, you calculate the present value of all future lease payments, discounted at 5%. Let’s say the present value comes out to $102,500.
On the day the lease begins, your accounting team would make the following journal entry:
Dr Right-of-Use Asset $102,500
Cr Lease Liability $102,500
This entry reflects the asset your business now controls (the right to use the equipment) and the liability you owe (the lease payments over time).
Step 2: Monthly lease payment
Each month, you’ll reduce the lease liability by part of the payment, and record interest expense. Here’s how the first monthly payment might look:
Dr Lease Liability $2,570
Dr Interest Expense $430
Cr Cash $3,000
The exact amounts will change slightly each month, because the interest is calculated on the remaining lease liability. As the liability goes down, the interest portion of the payment goes down too.
Step 3: Identifying the current portion of lease liabilities
At the end of the first year, you’ve made 12 payments and have 24 left. You now need to split the lease liability into:
Current portion: payments due in the next 12 months
Non-current portion: payments due after that
Let’s say the remaining liability is $71,000. Of that, $33,000 is due over the next 12 months. You’d report:
Current portion of lease liabilities: $33,000
Non-current lease liabilities: $38,000
This split appears in your financial statements and helps users see what’s due soon vs. what’s long-term.
Why this matters
This example shows how even a straightforward lease affects several parts of your accounting:
Balance sheet: Shows both the lease liability and the right-of-use asset
Income statement: Includes interest expense and depreciation
Cash flow statement: Records lease payments under financing activities (for finance leases)
Even simple leases require accurate tracking of amortization schedules, interest calculations, and asset balances. And if you have many leases across different locations or currencies, the complexity multiplies quickly.
That’s why businesses turn to tools like SOFT4Lessee, which automate these steps. The system calculates liabilities, tracks interest, updates the current portion automatically, and generates reports aligned with accounting standards.
How to calculate the current portion of lease liabilities
Here’s how you calculate it step by step:
Gather your lease schedule: Find out how much is due each month.
Identify the next 12 months of payments: These make up the current portion.
Discount future payments if required: Apply the interest rate used in the lease agreement.
Update regularly: Recalculate every year, especially if lease terms change.
If you have several leases across multiple locations, this gets complicated. That’s where lease accounting tools like SOFT4Lessee help. It automatically tracks lease payments, interest rates, and updates the split between current and long-term liabilities.
Compliance with accounting standards
Rules like IFRS 16, ASC 842, and AASB 16 are designed to make lease reporting more transparent. These standards are not optional - businesses must follow them.
As Thomson Reuters explains, compliance requires businesses to “gather and record lease-related data properly.” Many companies find this challenging, especially when dealing with hundreds of leases.
What do the standards require?
You need to disclose:
Total lease liabilities
Current and non-current portions
Right-of-use assets
Interest expenses
Payment schedules and maturity analysis
This is where SOFT4Lessee comes in. It helps businesses by:
Automatically generating disclosure reports
Tracking lease changes and modifications
Providing full audit trails
Running transition simulations for IFRS 16 and ASC 842
Integrating with your ERP system
This not only reduces manual work but helps avoid errors in reporting.
Managing leasing liabilities with SOFT4Lessee
SOFT4Lessee is designed to help companies manage all their lease accounting requirements in one place.
Key features:
Automatic lease classification (operating vs. finance)
Excel import/export
Clear audit trail for every change
Document management for lease contracts and amendments
Automated journal entries for lease liabilities
SOFT4Lessee integrates with systems like:
Microsoft Dynamics 365
SAP
Oracle NetSuite
Sage
Xero
Others
This means your accounting team doesn’t need to switch between systems or enter data twice. Lease entries flow directly into your general ledger, keeping everything consistent.
Real-life lease liability examples with journal entries
Let’s look at a real example. A company signs a 4-year lease for office space, paying $5,000 per month.
At lease start:
Dr Right-of-Use Asset 220,000
Cr Lease Liability 220,000
(This assumes some interest has already been factored in.)
Each monthly payment:
Dr Lease Liability 4,200
Dr Interest Expense 800
Cr Cash 5,000
End of year:
Let’s say 12 payments are done. The next 12 months (year 2) become the current portion of lease liabilities. The rest is non-current.
With SOFT4Lessee, this update happens automatically. The system recalculates the liability split based on your payment schedule and lease length.
Choosing the right lease accounting solution
Not every business has the same lease management needs. Some manage a few property leases. Others have hundreds of leases for equipment, vehicles, and spaces across multiple countries.
When selecting software, ask:
Does it support multi-entity accounting?
Can it handle both finance and operating leases?
Are disclosure reports generated automatically?
Does it integrate with your ERP system?
Is there audit trail visibility?
How easy is onboarding and support?
SOFT4Lessee offers flexibility, allowing you to deploy it either in the cloud or on-premises. It also provides user support, training, and a full knowledge center to help teams stay informed.
Finding the right lease accounting software isn’t just about ticking boxes. It’s about making sure your team can manage leasing liabilities easily, stay compliant, and reduce the risk of reporting mistakes.
Whether you’re handling five leases or five hundred, the tool you choose should meet both your current needs and any future growth. Here are the key things to consider:
Supports all lease types and standards
Good software should support both operating and finance leases and be fully aligned with standards like IFRS 16, ASC 842, and AASB 16. It should help you classify leases correctly, calculate liabilities accurately, and manage changes like extensions or early terminations.
SOFT4Lessee handles all lease types and automates calculations, reducing the chance of errors in manual spreadsheets.
Tracks current and non-current liabilities
You need a system that automatically splits lease liabilities into current and non-current portions. This is especially important for balance sheet accuracy and compliance reporting. With SOFT4Lessee, these updates happen in real time as payment schedules change or new leases are added.
Built-in disclosures and reports
Preparing disclosure reports manually takes time and increases risk. Choose a tool that can generate required outputs like:
Right-of-use asset balances
Lease liability schedules
Maturity analysis
Interest and amortization reports
SOFT4Lessee offers all of these, making audit preparation much simpler.
Integration with accounting systems
The lease accounting tool should work with your main systems. SOFT4Lessee integrates with Microsoft Dynamics 365, SAP, Oracle NetSuite, Sage, Xero and others, so journal entries and updates flow directly into your ERP.
This saves time, avoids double entry, and reduces the chance of errors.
Scales with your business
If your business operates in multiple countries or entities, you’ll need support for multi-currency, multi-entity, and different reporting calendars. SOFT4Lessee supports these setups out of the box, making it easier to consolidate or separate reports as needed.
Easy to use and get support
Software should make things easier, not harder. A clear interface, Excel import/export, and support for document storage all help teams work faster. SOFT4Lessee also provides onboarding, support, and training, so your team has help when they need it.
Flexible deployment
Some businesses prefer cloud access. Others need to host data on-site. SOFT4Lessee lets you choose between cloud and on-premises deployment, giving you the control that fits your IT setup.
FAQs on lease liabilities and compliance
What is the current portion of lease liabilities?
It’s the amount of lease payments due in the next 12 months. You report it under current liabilities in your financial statements.
How do you calculate the current portion of operating lease liabilities?
You add up the payments due over the next year and apply any interest rates. This is part of your current liabilities.
Is a lease a liability or an asset?
It’s both. You record a lease liability for the payments you owe and a right-of-use asset for the value of using the asset.
What disclosures are required under IFRS 16 and ASC 842?
You must disclose lease liabilities, current vs. non-current portions, right-of-use assets, interest expenses, and payment schedules.
How does SOFT4Lessee ensure lease accounting compliance?
It automates calculations, manages journal entries, tracks changes, and generates reports that follow IFRS 16, ASC 842, and AASB 16.
A better way to manage leasing liabilities
Understanding and managing leasing liabilities is important for every business that uses rented assets. From knowing how to calculate the current portion of lease liabilities to ensuring compliance with standards like IFRS 16 and ASC 842, there’s a lot to get right.
Software like SOFT4Lessee helps businesses stay on top of these tasks. It reduces manual work, avoids compliance risks, and saves time by automating lease tracking and reporting.
If your company is still using spreadsheets or struggling with multiple systems, it may be time to explore a more efficient lease accounting solution.
Related articles
Current portion of lease liabilities - with examples

Understanding lease liabilities: a practical guide for businesses
Lease liabilities are a regular part of doing business. If your company rents office space, equipment, or vehicles, you're probably dealing with leases. But when it comes to accounting, many businesses get confused.
Questions like “Is a lease a liability or asset?”, “What are lease liabilities?”, or “How do I calculate the current portion of lease liabilities?” come up often. This guide will help you answer these questions and show how tools like SOFT4Lessee can make lease management easier.
What are lease liabilities?
In financial reporting, lease liabilities represent the amount a business still owes for its active leases. This includes future lease payments, discounted to present value, and is reported as a liability on the balance sheet.
Is a lease a liability? Yes, in most cases, a lease is a liability. Under accounting rules like IFRS 16 and ASC 842, if you sign a lease that gives you control over an asset for a period of time, you're expected to report a lease liability. You must also recognize the right-of-use (ROU) asset, which represents your right to use that leased asset.
So, if you’re wondering “Is a lease a liability or asset?”, the answer is simple: it’s both.
Accounting standards like IFRS 16, ASC 842, and AASB 16 require companies to recognize these liabilities clearly. This ensures that financial statements show a full and accurate picture of what the business owes - not just loans or trade payables, but also leases.
Why lease liabilities matter? Lease liabilities affect several parts of financial reporting:
Balance sheet: Shows total lease liabilities and separates them into current and non-current portions.
Income statement: Includes interest expense related to the lease liability.
Cash flow statement: Reflects lease payments (especially for finance leases) in the financing section.
This information helps investors, auditors, and stakeholders understand your company’s debt position, cash flow commitments, and asset usage.
Operating vs. finance leases
There are two main types of leases: operating leases and finance leases.
Finance leases are treated more like purchases. You record both a liability and an asset on your balance sheet.
Operating leases used to be treated off-balance sheet, but under IFRS 16 and ASC 842, that’s changed. Now, most operating leases also create lease liabilities.
SOFT4Lessee helps classify each lease type correctly and keeps your reporting in line with international accounting standards.
What are lease liabilities in financial reporting?
Current vs. non-current lease liabilities
To improve transparency, lease liabilities are split into:
Current portion of lease liabilities. These are the payments due within the next 12 months. They appear under “current liabilities” and give a short-term view of obligations
Non-current lease liabilities. These are the payments due beyond 12 months. They go under “non-current liabilities” and show long-term commitments
This breakdown is essential. It tells how much money the business will need in the near future to meet its lease obligations, and how much is spread out over time.
Let’s say you have $100,000 in total lease liabilities. If $30,000 is due in the next year and $70,000 after that, your financial statements will show:
Current portion of lease liabilities: $30,000
Non-current lease liabilities: $70,000
This structure helps external parties quickly see whether your business has enough liquidity to meet upcoming payments.
What about operating leases?
Under previous rules, many operating leases were kept off the balance sheet. But now, under IFRS 16 and ASC 842, most operating leases must be reported just like finance leases.
This means even if your lease is for office space or equipment that you don’t plan to buy, you’ll still need to:
Record a lease liability
Record a right-of-use (ROU) asset
Split the liability into current and non-current portions
The only exceptions are short-term leases (12 months or less) or low-value assets, and even then, some companies choose to recognize them for consistency.
Lease liabilities example: A simple case
Understanding how lease liabilities work is easier when you see a lease liabilities example. Let’s walk through a basic lease scenario step by step. This helps explain how lease liabilities are recorded, how the current portion is calculated, and what happens on the balance sheet.
Scenario: equipment lease
Suppose your company leases a piece of manufacturing equipment. Here are the key terms of the lease:
Lease term: 3 years
Monthly payment: $3,000
Payment schedule: First payment due at the end of each month
Discount rate: 5% (used to calculate the present value of lease payments)
The total lease payments over 3 years will be:
3 years × 12 months = 36 payments
36 payments × $3,000 = $108,000
Step 1: Initial recognition of the lease
At the start of the lease, you calculate the present value of all future lease payments, discounted at 5%. Let’s say the present value comes out to $102,500.
On the day the lease begins, your accounting team would make the following journal entry:
Dr Right-of-Use Asset $102,500
Cr Lease Liability $102,500
This entry reflects the asset your business now controls (the right to use the equipment) and the liability you owe (the lease payments over time).
Step 2: Monthly lease payment
Each month, you’ll reduce the lease liability by part of the payment, and record interest expense. Here’s how the first monthly payment might look:
Dr Lease Liability $2,570
Dr Interest Expense $430
Cr Cash $3,000
The exact amounts will change slightly each month, because the interest is calculated on the remaining lease liability. As the liability goes down, the interest portion of the payment goes down too.
Step 3: Identifying the current portion of lease liabilities
At the end of the first year, you’ve made 12 payments and have 24 left. You now need to split the lease liability into:
Current portion: payments due in the next 12 months
Non-current portion: payments due after that
Let’s say the remaining liability is $71,000. Of that, $33,000 is due over the next 12 months. You’d report:
Current portion of lease liabilities: $33,000
Non-current lease liabilities: $38,000
This split appears in your financial statements and helps users see what’s due soon vs. what’s long-term.
Why this matters
This example shows how even a straightforward lease affects several parts of your accounting:
Balance sheet: Shows both the lease liability and the right-of-use asset
Income statement: Includes interest expense and depreciation
Cash flow statement: Records lease payments under financing activities (for finance leases)
Even simple leases require accurate tracking of amortization schedules, interest calculations, and asset balances. And if you have many leases across different locations or currencies, the complexity multiplies quickly.
That’s why businesses turn to tools like SOFT4Lessee, which automate these steps. The system calculates liabilities, tracks interest, updates the current portion automatically, and generates reports aligned with accounting standards.
How to calculate the current portion of lease liabilities
Here’s how you calculate it step by step:
Gather your lease schedule: Find out how much is due each month.
Identify the next 12 months of payments: These make up the current portion.
Discount future payments if required: Apply the interest rate used in the lease agreement.
Update regularly: Recalculate every year, especially if lease terms change.
If you have several leases across multiple locations, this gets complicated. That’s where lease accounting tools like SOFT4Lessee help. It automatically tracks lease payments, interest rates, and updates the split between current and long-term liabilities.
Compliance with accounting standards
Rules like IFRS 16, ASC 842, and AASB 16 are designed to make lease reporting more transparent. These standards are not optional - businesses must follow them.
As Thomson Reuters explains, compliance requires businesses to “gather and record lease-related data properly.” Many companies find this challenging, especially when dealing with hundreds of leases.
What do the standards require?
You need to disclose:
Total lease liabilities
Current and non-current portions
Right-of-use assets
Interest expenses
Payment schedules and maturity analysis
This is where SOFT4Lessee comes in. It helps businesses by:
Automatically generating disclosure reports
Tracking lease changes and modifications
Providing full audit trails
Running transition simulations for IFRS 16 and ASC 842
Integrating with your ERP system
This not only reduces manual work but helps avoid errors in reporting.
Managing leasing liabilities with SOFT4Lessee
SOFT4Lessee is designed to help companies manage all their lease accounting requirements in one place.
Key features:
Automatic lease classification (operating vs. finance)
Excel import/export
Clear audit trail for every change
Document management for lease contracts and amendments
Automated journal entries for lease liabilities
SOFT4Lessee integrates with systems like:
Microsoft Dynamics 365
SAP
Oracle NetSuite
Sage
Xero
Others
This means your accounting team doesn’t need to switch between systems or enter data twice. Lease entries flow directly into your general ledger, keeping everything consistent.
Real-life lease liability examples with journal entries
Let’s look at a real example. A company signs a 4-year lease for office space, paying $5,000 per month.
At lease start:
Dr Right-of-Use Asset 220,000
Cr Lease Liability 220,000
(This assumes some interest has already been factored in.)
Each monthly payment:
Dr Lease Liability 4,200
Dr Interest Expense 800
Cr Cash 5,000
End of year:
Let’s say 12 payments are done. The next 12 months (year 2) become the current portion of lease liabilities. The rest is non-current.
With SOFT4Lessee, this update happens automatically. The system recalculates the liability split based on your payment schedule and lease length.
Choosing the right lease accounting solution
Not every business has the same lease management needs. Some manage a few property leases. Others have hundreds of leases for equipment, vehicles, and spaces across multiple countries.
When selecting software, ask:
Does it support multi-entity accounting?
Can it handle both finance and operating leases?
Are disclosure reports generated automatically?
Does it integrate with your ERP system?
Is there audit trail visibility?
How easy is onboarding and support?
SOFT4Lessee offers flexibility, allowing you to deploy it either in the cloud or on-premises. It also provides user support, training, and a full knowledge center to help teams stay informed.
Finding the right lease accounting software isn’t just about ticking boxes. It’s about making sure your team can manage leasing liabilities easily, stay compliant, and reduce the risk of reporting mistakes.
Whether you’re handling five leases or five hundred, the tool you choose should meet both your current needs and any future growth. Here are the key things to consider:
Supports all lease types and standards
Good software should support both operating and finance leases and be fully aligned with standards like IFRS 16, ASC 842, and AASB 16. It should help you classify leases correctly, calculate liabilities accurately, and manage changes like extensions or early terminations.
SOFT4Lessee handles all lease types and automates calculations, reducing the chance of errors in manual spreadsheets.
Tracks current and non-current liabilities
You need a system that automatically splits lease liabilities into current and non-current portions. This is especially important for balance sheet accuracy and compliance reporting. With SOFT4Lessee, these updates happen in real time as payment schedules change or new leases are added.
Built-in disclosures and reports
Preparing disclosure reports manually takes time and increases risk. Choose a tool that can generate required outputs like:
Right-of-use asset balances
Lease liability schedules
Maturity analysis
Interest and amortization reports
SOFT4Lessee offers all of these, making audit preparation much simpler.
Integration with accounting systems
The lease accounting tool should work with your main systems. SOFT4Lessee integrates with Microsoft Dynamics 365, SAP, Oracle NetSuite, Sage, Xero and others, so journal entries and updates flow directly into your ERP.
This saves time, avoids double entry, and reduces the chance of errors.
Scales with your business
If your business operates in multiple countries or entities, you’ll need support for multi-currency, multi-entity, and different reporting calendars. SOFT4Lessee supports these setups out of the box, making it easier to consolidate or separate reports as needed.
Easy to use and get support
Software should make things easier, not harder. A clear interface, Excel import/export, and support for document storage all help teams work faster. SOFT4Lessee also provides onboarding, support, and training, so your team has help when they need it.
Flexible deployment
Some businesses prefer cloud access. Others need to host data on-site. SOFT4Lessee lets you choose between cloud and on-premises deployment, giving you the control that fits your IT setup.
FAQs on lease liabilities and compliance
What is the current portion of lease liabilities?
It’s the amount of lease payments due in the next 12 months. You report it under current liabilities in your financial statements.
How do you calculate the current portion of operating lease liabilities?
You add up the payments due over the next year and apply any interest rates. This is part of your current liabilities.
Is a lease a liability or an asset?
It’s both. You record a lease liability for the payments you owe and a right-of-use asset for the value of using the asset.
What disclosures are required under IFRS 16 and ASC 842?
You must disclose lease liabilities, current vs. non-current portions, right-of-use assets, interest expenses, and payment schedules.
How does SOFT4Lessee ensure lease accounting compliance?
It automates calculations, manages journal entries, tracks changes, and generates reports that follow IFRS 16, ASC 842, and AASB 16.
A better way to manage leasing liabilities
Understanding and managing leasing liabilities is important for every business that uses rented assets. From knowing how to calculate the current portion of lease liabilities to ensuring compliance with standards like IFRS 16 and ASC 842, there’s a lot to get right.
Software like SOFT4Lessee helps businesses stay on top of these tasks. It reduces manual work, avoids compliance risks, and saves time by automating lease tracking and reporting.
If your company is still using spreadsheets or struggling with multiple systems, it may be time to explore a more efficient lease accounting solution.