Accounting is always something that’s put off by business owners, especially if they do it themselves. Even if they’ve hired accountants they can be slow to get vital information to them because accounting always gets put on the back burner. However, if you get your accounting wrong, it could cost you time and money and with the new ASC 842 lease accounting updates you might just be getting your lease treatment and accounting wrong. The changes to lease accounting may or may not impact you. Let’s find out.
"What is ASC 842?" you might ask. Simply put, it's the new standard that companies following GAAP in the United States are required to use to account for their leases. It’s still a relatively newly rolled out bit of guidance but it’s worth checking that you or your accountants have subscribed to this new method of lease accounting. You can of course use lease accounting software to help you out if you think it’s a bit complicated. It’s important to get right because when you get your books audited, for whatever reason, you’ll end up having to do it retrospectively which is even more frustrating.
If you follow GAAP in the United States (so any United States business really) and have any kind of lease agreement, whether as the lessor or lessee, the accounting updates will impact you, and as such it’s totally worthwhile asking “what is ASC 842”. The reality is that most USA businesses have some sort of lease agreement, some just have way more than others. If you’re really worried about the changes, or haven’t heard of them and think you’ve drawn up incorrect accounts speak to an accountant. You can retroactively change what’s happened. It’s better to be proactive but the reality is that business owners are busy and sometimes things slip.
Pretty much no more off-balance sheet activities. The purpose of ASC 842 is to increase transparency across the board. It means your lease arrangements will be on the balance sheet. Thus, those seeking to value or audit your business will see the full picture. The change is essential because some businesses that buy assets instead of lease look a lot different on the balance sheet. There are further changes too depending if you are a governmental organization or a non for profit.
There are some easy steps to take here to mitigate the impact on your business:
It’s quite simple, but also eminently important to ensure your accounting regime is up to date. Ensure that it properly follows current guidelines.