The Need to Knows of Lease Accounting

Lease accounting is something that has now been made much easier by software. We shall consider in this article just why this is.

A piece of software that we have come across is something like the Enterprise lease accounting by LeaseAccelerator, which will do much of the work for you and help you keep on top of the various accounting standards in respect of leasing.

Helping with Lease Accounting Standards

Some specific accounting standards related to lease accounting need to be adhered to so that a business stays inside the law and correctly accounts for figures related to leasing.

The main leasing accounting standards that software will help with, include:

  • ASC 842 – replaces ASC 840 to increase visibility in terms of the disclosure of leasing obligations to the public and also private businesses.
  • GASB 87 – makes a single model for lease accounting that is based on the one principle that leases are the right to use an asset in financial terms.
  • IFRS 16 – represents a new accounting standard that replaced IAS 17. It determines how leases are reflected on a balance sheet, only excluding short-term leases of 12 months or less.

What is Lease Accounting Software?

Lease accounting software is a tool that will help lessors manage the financial aspects of leases when it comes to recording figures for the assets that they lease.

It is useful to have that guiding hand as to what figure goes where so that leases are accurately reflected on balance sheets. This is, after all, the record of how well a business has performed in a single year.

There are many figures to record with a lease and this is easier managed on a computer system.

This is particularly the case where a company manages many leases at the same time. We do not want, for instance, to miss a deadline in terms of collecting money owed or when it comes to reporting leases.

Auditors will prefer companies to have a piece of software that makes the task of auditing lease information an easier one where nothing is hidden in that respect.

Why is it important that Leases are Reflected Accurately on a Balance Sheet?

Leases should be reflected accurately on balance sheets because they are a document that many within the financial sector will refer to when making their mind up about how well a business has performed.

To mislead on leases would not provide an accurate picture to those wanting to know about the activities and performance of the business in question.

Individuals or businesses might look at a balance sheet in the following instances:

  • To see how a business can be streamlined to save on costs.
  • For investment purposes.
  • When it comes to a bank deciding whether to allow a business loan.

The implications of misleading someone financially do not bear thinking about and are why there have been recent changes to accountancy standards to more accurately reflect a business’s situation to those looking in from the outside. Leases have previously been a misleading area.

Managers of a business will make great use of a company’s balance sheet in making decisions moving forward and also want those investing to have confidence in its accuracy and fair portrayal of the company’s position.

It is important to account for leases correctly for transparency, and computer software helps with that task. It helps staff keep track of leases and present them in the way required by these various accountancy standards.

To satisfy the regulatory bodies, it pays to keep up-to-date with software and the latest lease accounting standards. Nobody wants to pick up a fine simply because they did not have the correct software that would have prevented it from happening.

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