New FASB lease accounting standard (ASC 842)

The Lease Accounting Standard Change, ASU 2016-02, Leases (Topic 842), presents significant changes to the Balance Sheet of the Lessee.  The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

  1. The Lessee must recognize operating lease assets and liabilities on the balance sheet.
  2. Differentiating between a service contract and an operating lease will be required.
  3. The Lessor is only required to recognize lease assets and liabilities for leases with terms of more than 12 months.
  4. Leased assets affected include all property, plant and equipment, including real estate and office equipments.
  5. The way that a lessee recognizes, remains relatively unchanged.

For public companies, the new leasing standard will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. For private companies, the standard will be effective the following year, for annual periods beginning after December 15, 2019. Early adoption will be permitted.

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Diana McCalpin is an accountant who manages a Certified Public Accounting Practice in Laurel, Maryland which performs audit, accounting and tax services to customers. She loves to share information with clients to help them grow their businesses and be profitable.

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