A sales professional with experience spanning over 15 years, Chris Nashed has worked with multiple stakeholders across different businesses and regions. As the present Vice President of Sales at Leasecake, Chris Nashed manages sales, business development, financial planning, and project management. A significant facet of the company’s portfolio is operating leases.
An operating lease is a contract between a lessor and the lessee. The lessor allocates the lessee access to the asset for use over some time, less than the economic life of that asset. In return the lessee makes scheduled payments throughout use. The accounting for the process is regulated through the Accounting Standards Codification (ASC), set by the Financial Accounting Standards Board (FASB). Two major standards currently exist, ASC 840 and ASC 842.
Though the definition of an operating lease applies to both, the accounting differs. ASC 840 is considered an off-balance sheet transaction, where the lease expense is recognized on the income statement but not in any balance sheet. Only the capital leases appear on the balance sheet. The downside of this arrangement is that it complicates the company commitment volumes understanding and makes it difficult to compare companies, especially those with different approaches to leasing versus capital assets.
To overcome these challenges, in 2016, the FASB introduced ASC 842. Public and private companies were required to adopt the new standard in 2019 and 2020, respectively. In this case, non-government entities and some not-for-profit organizations need the lease assets to be included in financial statements, both for operating or finance leases. This improves monetary value and transparency and streamlines lease cash flows uncertainties and timing.
An operating lease is a contract between a lessor and the lessee. The lessor allocates the lessee access to the asset for use over some time, less than the economic life of that asset. In return the lessee makes scheduled payments throughout use. The accounting for the process is regulated through the Accounting Standards Codification (ASC), set by the Financial Accounting Standards Board (FASB). Two major standards currently exist, ASC 840 and ASC 842.
Though the definition of an operating lease applies to both, the accounting differs. ASC 840 is considered an off-balance sheet transaction, where the lease expense is recognized on the income statement but not in any balance sheet. Only the capital leases appear on the balance sheet. The downside of this arrangement is that it complicates the company commitment volumes understanding and makes it difficult to compare companies, especially those with different approaches to leasing versus capital assets.
To overcome these challenges, in 2016, the FASB introduced ASC 842. Public and private companies were required to adopt the new standard in 2019 and 2020, respectively. In this case, non-government entities and some not-for-profit organizations need the lease assets to be included in financial statements, both for operating or finance leases. This improves monetary value and transparency and streamlines lease cash flows uncertainties and timing.
