Tracking Lease Details After ASC 842
Lease details are vitally important when it comes to complying with ASC 842. The new accounting procedures can be confusing, but by tracking the right information you can make the process much easier for yourself. In this article, we will discuss which lease details are the most important and how to track them effectively.
Some of the most important lease details to track include:
- Lease term
- Lease payments
- Renewal options
- Lease termination options
- Space usage rights
By tracking these lease details, you can ensure that you comply with ASC 82 and avoid any penalties. Additionally, keeping up with your lease details will help you save money and negotiate better terms in the future.
If you want to learn more about tracking lease details or ASC 82 compliance, contact us today. We would be happy to help you get started on the path to compliance.
ASC 842 Lease Accounting Summary
One of the biggest changes dictated by ASC 842 pertains to the definition of a lease, and it really is true that the devil’s in the details when it comes to the shifts that have been initiated.
Specifically, we’re talking about four different kinds of leases—capital leases, finance leases, operating leases, and short-term leases. There are new details that apply all of these types as a result of ASC 842, so let’s clarify what they are and how these definitions work under the new standard.
Start with finance leases and capital leases. Finance leases actually used to be known as capital leases, and now, under ASC 842, they’re basically considered the same.
They’re essentially purchasing arrangements, and they both get capitalized on the balance sheet using similar procedures.
There are slight differences in the procedures to do this, but most of the basic calculations are identical, so the good news is that finance leases will have no new impact on the profit-and-loss statement.
Now let’s talk about operating leases. Before ASC 842, they were nowhere to be found on a balance sheet. The only way they were referenced was in the form of a future obligations that had to be included in the maturity analysis that was part of the disclosure material in a financial statement.
Not anymore. Under ASC 842 all operating leases have to be listed on a balance sheet, and that listing has to include the specifics terms of liability, along with the ROU assets that are part of the operating lease.
And there’s more. The other information that has to be present as part of the operating lease is the weighted average discount rate, the weighted average remaining on the terms of the lease, and the cash paid for all amounts, including lease liabilities.
The last definition we’ll consider is short-term leases. The good news is that these don’t have to be on the balance sheet, but the detail you need to pay attention to is that the definition of a short-term lease has changed.
Short-term leases are now defined as any lease with a term of 12 months or less at the start of the lease, and the lease doesn’t have a renewal options that the lessee is likely to exercise.
Another detail pertaining to short term leases is that the accounting process hasn’t changed. They’re still accounted for on a straight-line basis over the terms of the lease, so there are no major changes there.
Tax and Financial Accounting for Leases After ASC 842
As you’ve probably guessed from this rundown on the various lease definition changes, there’s also an impact on the balance sheet as well, so let’s sort out some of the major details pertaining to what needs to be on the balance sheet under ASC 842.
The most important detail is that companies now have to report complete information on all their right-of-use assets and liabilities.
That pertains to nearly every lease on the balance sheet, so it’s important to get the definitions sorted out correctly and include the right information.
The idea this change is to provide additional accuracy and transparency. The payoff is that once you get these details right, you’ll able to evaluate your company’s exposure to risk in the list leases, and that in will give you a better idea of your financial position.
Plus you’ll be able to do a more accurate and balanced comparison with your competitors, which will allow you to make better decisions to either catch up or stay ahead.
Determining the Correct Dates & Lease Term Under ASC 842
The last set of details we’ll consider here are those the most important ones in the lease abstract. It’s a summary document, of course, but it’s still important to review the salient details that need to be in it following all the ASC 842 changes.
The good news is that most of these details remain unchanged. Your abstract still needs to include the names of the landlord and tenant, along with the initiation and termination dates for the lease.
You also still have to have the details about options, which will include those pertaining to renewal and information about whether they were previously exercised by a tenant.
The details about the insurance policies are especially important when it comes to what’s on your abstract.
With all the definition changes, it’s vital that your leasing management software accurately updates the types of policies you have, along with the terms, the vital dates, and the other basic information.
We’re the ASC 842 Experts
These are just a few of the basic details you need to cover as you continue to convert to ASC 842. It’s not an easy process but having a complete lease management software package can help make the process easier, provided you have the expert help you need.
That’s where we come in. At iLeasePro, we’re ASC 842 experts—we already knew all the old ASC 840 procedures down to the last letter, and we’ve been helping companies and businesses master the new ASC 842 standard ever since it was implemented last year.
So call us. The number’s 1-888-351-4606, and we have experts who are eager to explain the particulars of ASC 842, not to mention the many ways we can help you benefits from them.
You can also go to iLeasePro.com and get plenty of great information about ASC 842, and you can start a live chat on our site as well.