FASB Lease Accounting Changes

A change in accounting rules implemented by The Financial Accounting Standards Board (FASB) has led to FASB lease accounting changes. Furthermore, the proposed lease accounting changes will bring a large amount of debt onto the balance sheets of companies that have large operating lease commitments. Going forward, the lease commitment will be recognized as a liability. In addition, the offsetting asset will be a right-to-use for the material being leased.

FASB Lease Accounting Rules

An example of an operating lease would be where a company rents office space. Under the new FASB lease accounting changes, the future lease payment obligations will be on the balance sheet as a liability. The offsetting asset will be an equivalent “right-to-use” entry.
At the end of the contract, the capital lease has an option to purchase the leased asset. In accordance with the new FASB lease accounting rule, the capitalized lease is already required to be carried on a company’s balance sheet as a debt to lease holder and an asset entry for the item being leased. This ruling in effect makes all leases capital leases.

Effective date

The effect of the FASB proposal on lease accounting could be enormous on industries that have large exposure to operating leases, such as real estate companies, etc. Also, a possible effect of the FASB lease accounting proposal would be where companies have to recognize leases on their balance sheet. That changes some loan covenants for debt ratios, etc. The changes became effective after the FASB decision in March 2011.

ARTICLES YOU MIGHT LIKE

Is Mexico the New China?

June 1, 2023

In the wake of the COVID-19 pandemic and escalating tensions with China, American companies are actively seeking alternatives to mitigate their supply chain risks and reduce dependence on Chinese manufacturing. Nearshoring, the process of relocating operations closer to home, has emerged as an explosive opportunity for American and Mexican companies to collaborate like never before.

The Accounting Gap Between Large and Small Companies

March 8, 2023

The Accounting Gap: It’s unfortunate, but true. A large gap exists between the accounting departments of large or publicly traded companies and smaller or private companies. In our past 25 years of consulting we’ve noticed that more often than not, these smaller/private companies will fill the gap with Bookkeepers, rather than the degreed Accountants/CPAs they

The Struggles of Private Company Accounting

June 9, 2022

Building your Accounting Department… When I meet a business owner operating at a successful $10+ mil in revenue I often hear them say “My CPA…” and I immediately know they are referring to a tax CPA. One thing ALL entrepreneurs have in common is that they have to file a tax return. So from day

MARCH 28TH-31ST 2022

Days

Hours

Min

August 7-10th, 2023

Days

Hours

Min

SHARE THIS ARTICLE