Some of you may not have heard, but the Financial Accounting Standards Board (FASB)has issued new accounting requirements for leases (ASC 842) that become effective in 2019 for public companies and 2020 for nonpublic companies. The accounting rules can be early applied and must be retroactively applied in comparative statements, so understanding the new lease rules and the impact on financial statements is imperative.
As in previous standards, there are two types of leases, finance leases, which are essentially capital leases, and operating leases. The big change is that ASC842 requires that operating leases be reported on the balance sheet, recognizing a right-of-use asset and a lease liability for virtually all operating leases.