As we all know, ASC 842, Leases, is effective this year for public business entities, certain not-for profit entities, and employee benefits plans that file statements with the SEC. For all other entities, it is effective in fiscal years beginning after December 15, 2019.
If you read our previous blog post, the Top 5 Biggest Changes With The New Lease Accounting Standard (ASC 842), you know that one of the biggest changes is that all leases, with an exception for lessees for short term leases via an accounting policy election, are recorded on the balance sheet. A core principal of the standard is that a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.
While there are various key concepts in applying the lease accounting guidance under ASC 842, in this blog post we will focus in on the lease term.
Please click on the video below for a brief tutorial on the lease term.
The determination of the lease term is integral to determining the lease payments, lease classification, and the measurement of lease assets and lease liabilities.
There are a number of key concepts in addition to the lease term that lessees and lessors apply to identify, classify, recognize, and measure lease contracts. To learn more about these key concepts or for more comprehensive training on lease accounting under ASC 842, check out our eLearning modules on the Revolution, our online learning platform.
Additionally, if you are looking for other resources on lease accounting, we previously posted a blog, Resources For The New Lease Accounting Standards, where we compiled a list of helpful accounting resources on both ASC 842 and IFRS 16.
This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.