What’s changing under the new operating lease accounting standard?
Probably the most significant change in the new FASB lease accounting standard, ASC 842, is the requirement to bring all leases with terms greater than 12 months onto the balance sheet. Under the current standard, operating leases appear only as cash payments and yearly expenses. Your operating lease accounting will need to change substantially when you adopt the new standard because you’ll need to record a right-of-use asset and an expense liability (initially recorded at the Present Value of the lease payments) on the balance sheet for every operating lease, just as you do today for finance leases.
In your accounting for an operating lease, treatment remains the same under the new standard: operating leases will continue to be expensed using the straight-line method. On your income statement, you can recognize a single lease expense that includes interest and amortization expense for the right-of-use asset. Or you can record interest and amortization of assets separately from base rent payments. Most organizations will choose the second method because interest and amortization of assets are categorized in different places on your financial statements.
Whichever method you choose, Visual Lease automatically performs the calculations and generates the required journal entries in your accounting system.
Visual Lease makes operating lease accounting easy & reliable
Using our FASB and IFRS compliant lease accounting module, you can automate operating lease accounting for all types of leased assets, including property, equipment and vehicles.
- Import existing lease data fast with data migration templates.
- Automatically classify finance and operating leases with our built-in test.
- Calculate and record the initial right-of-use assets for every lease.
- Calculate monthly and annual expenses related to each asset.
- Send GL journal entries and disclosures according to your chosen expense method.
- For determining Present Value of assets, configure the discount rate that works best for your business.
- Manage specialized lease accounting including percentage rent, lessor/sublease, sale-leaseback and more
- Create multiple data streams for recording entries under the current and new standards during the transition.