GAAP for Leases

1. Introduction
2. ASC 842 The Lease Accounting Standard 00:02:12
3. Old Way- Airline Lease 00:04:21
4. Old Way - Balance Sheet 00:05:12
5. Old Way- Financial Mirage 00:06:42
6. Circuit City 00:08:15
7. Nature of Property 00:09:10
8. Lease Accounting Effective Date 00:11:49
9. Definition of a Lease 00:13:04
10. Identified Asset 00:13:52
11. Right to Control 00:15:15
12. Lease - Right of Use- Lease Liability 00:17:27
13. Steps in Applying ASC 842 00:20:27
14. Calculating Lease Payments: 3 Steps 00:25:27
15. Note: Lease Contract Components 00:27:17
16. Required Allocation of Payments Under Lease Contract 00:29:02
17. Identifying Lease Payments 00:34:32
18. Identifying Lease Payments: Example 00:37:49
19. Determining Lease Term 00:40:29
20. Selecting Discount Rate 00:44:44
21. Calculating Lease Payments Example 00:48:03
22. Calculating Lease Payments Example Cont’d 00:48:21
23. Calculating Lease Payments Example Cont’d 00:48:57
24. Calculating Lease Payments Example Cont’d 00:49:49
25. Steps in Applying ASC 842 00:51:13
26. Calculation of ROU 00:51:29
27. Steps in Applying ASC 842 00:53:13
28. Calculating ROU Asset and Lease Liability 00:53:25
29. Recognizing ROU Asset and Lease Liability 00:55:03
30. Finance vs. Operating Leases 00:55:45
31. Finance Lease Criteria 00:57:59
32. Steps in Applying ASC 842 01:01:52
33. What Is Operating Lease Accounting? 01:02:45
34. Why An Accreted Amount is Needed 01:03:35
35. Why An Accreted Amount is Needed 01:05:47
36. Operating Lease Annual Accounting 01:08:46
37. Operating Lease Example: Year 1 01:09:02
38. Operating Lease Example 01:10:45
39. Operating Lease Example: Year 1 01:11:25
40. Operating Lease Example: Year 2 01:14:06
41. Operating Lease Example: Year 3 01:14:35
42. Finance or Operating Lease? 01:15:52
43. Finance Lease Accounting 01:21:57
44. Finance Lease Example: Year 1 01:25:38
45. Financing Lease Example 01:28:58
46. Financing Lease Example Cont’d 01:30:01
47. Financing Lease Example: Year 1 01:30:58
48. Financing Lease Example: Year 2 01:33:48
49. Comparison of Accounting Approach 01:35:22
50. Thank You 01:38:18
51. Presentation Closing 01:38:53

• 

  Chuck Borek

  Chuck Borek is a practicing attorney and founder of  the Borek Group, LLC. Chuck is also a CPA, and his background includes  five years as a partner in a public accounting firm. He received his law degree and MBA summa cum laude from the University of Baltimore in 1993, where he was editor [...]

  View Full Profile

• Accounting (ACCG) 00:03:26, 00:08:08, 00:18:35, 00:56:31, 01:22:15
• Accreted Interest 01:14:15
• Amortization 00:24:44, 01:01:58, 01:08:59, 01:33:53
• ASC 842 00:02:20, 00:20:31, 01:01:56
• ASC - Accounting Standards Codification 00:02:13
• Asset 00:03:00, 00:11:32, 00:13:28, 00:18:09, 00:45:27, 00:54:56, 01:30:13
• Balance Sheet (BS) 00:02:39, 00:08:30
• Capitalize 00:58:12
• Contract 00:38:03, 00:52:18
• Copyright 00:09:47
• Depreciation 01:29:17
• Direct Costs 00:51:36, 01:02:13
• Embedded Lease
• Expense 00:02:44, 00:28:17, 00:57:09, 01:05:23, 01:09:04
• Fair Market Value (FMV) 00:44:57
• FASB - Financial Accounting Standards Board 00:03:07, 00:11:40
• Finance Lease 00:25:00, 00:55:45, 01:15:57, 01:22:02, 01:35:45
• Financial Statement 00:06:10, 00:08:53, 00:13:32
• Generally Accepted Accounting Principles (GAAP) 00:01:04, 00:12:16, 01:38:12
• Identified Asset 00:13
• Implicit Rate 00:46:29, 01:29:24
• Income Statement 00:02:42
• Intellectual Property (IP) 00:09:46
• Leasehold Interest 00:11:10
• Lease Liability 00:24:44, 00:55:35, 01:04:57, 01:14:26, 01:34:42
• Lessee 00:15:47, 00:27:36, 00:46:09
• Lessor 00:14:06, 00:45:07
• Liability 00:05:20, 00:08:39, 00:17:39, 00:52:09, 01:14:41
• Non-Profit Organizations (NPO) 01:36:22
• Operating Lease 00:55:47, 01:02:46, 01:09:09, 01:15:57, 01:35:25
• Present Value (PV) 00:19:10, 00:25:49, 00:48:18, 00:53:03, 01:02:09, 01:05:08, 01:11:30, 01:30:19
• Right-of-Use Asset (ROU Asset) 00:14:05, 00:18:25, 00:27:46, 00:40:28, 00:51:22, 00:57:15, 01:10:39, 01:15:24, 01:34:59
• Straight Line Amortization 01:29:19
• Supplier 00:28:41
• Transaction 00:07:25

ASC - Accounting Standards Codification: In US accounting practices, the Accounting Standards Codification is the current single source of United States Generally Accepted Accounting Principles. It is maintained by the Financial Accounting Standards Board.

Accounting (ACCG): A systematic way of recording and reporting financial transactions for a business or organization.

Accreted Interest : Accreted Interest means interest accrued on a Loan Asset that is added to the principal amount of such Loan Asset instead of being paid as interest as it accrues.

Amortization: An accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time. (investinganswers.com)

Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments or legacies.

Balance Sheet (BS): A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner or shareholder equity at a given time.

Capitalize: To capitalize is to record a cost/expense on the balance sheet for the purposes of delaying full recognition of the expense. In general, capitalizing expenses is beneficial as companies acquiring new assets with long-term lifespans can amortize the costs. (www.investopedia.com)

Contract: A written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law.

Copyright : Copyright is the exclusive right given to the creator of a creative work to reproduce the work, usually for a limited time. The creative work may be in a literary, artistic, educational, or musical form.

Depreciation: A reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Direct Costs: Direct costs are expenses that directly go into producing goods or providing services, while indirect costs are general business expenses that keep you operating. Examples of direct costs are direct labor, direct materials, commissions, piece-rate wages, and manufacturing supplies.

Expense: Offset (an item of expenditure) as an expense against taxable income.

FASB - Financial Accounting Standards Board: The Financial Accounting Standards Board is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles within the United States in the public's interest.

Fair Market Value (FMV): The term fair market value is used throughout the Internal Revenue Code among other federal statutory laws in the USA including Bankruptcy, many state laws, and several regulatory bodies. In litigation in many jurisdictions in the United States, the fair market value is determined at a hearing.

Finance Lease: A financial lease is generally treated like loan. Here, asset ownership is considered by the lessee, so the asset appears on the balance sheet.

Financial Statement: Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. ... A balance sheet or statement of financial position, reports on a company's assets, liabilities, and owners equity at a given point in time.

Generally Accepted Accounting Principles (GAAP): A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.

Identified Asset: An identified asset is a specific asset that is clearly designated in a contract or identified at the time it's made available for use. It's a key concept in lease accounting (IFRS 16) and other areas where the ownership or use of an asset is being defined.

Implicit Rate: The rate implicit in the lease is the interest rate set by the lessor in the lease agreement. This is the rate at which the present value of the lease payments and the unguaranteed residual value equals the sum of the fair value of the underlying asset and any initial direct costs of the lessor. To calculate the implicit rate, find the percentage that, when applied to the sum of the minimum lease payments, causes the present value of all the payments to equal the current fair market price of the rental property. On a computer spreadsheet, type =RATE(in a cell).

Income Statement: One of the three primary financial statements used to assess a company's performance and financial position (the two others being the balance sheet and the cash flow statement). The income statement summarizes the revenues and expenses generated by the company over the entire reporting period. (investinganswers.com)

Intellectual Property (IP): Intellectual property (IP) refers to creations of the mind, such as inventions, literary and artistic works, designs, and symbols, which are protected by law through exclusive rights granted to the owner for a limited time. The main types of IP protection are patents for inventions, copyrights for creative works, trademarks for brand identifiers, and trade secrets for confidential business information. IP rights serve to provide financial incentives for innovation, drive economic growth, and allow creators to control and benefit from their works.

Lease Liability: In accounting, a lease liability is a financial obligation to make the payments arising from a lease, measured on a discounted basis. Lease liability is calculated using the present value of the lease payments over the lease term discounted, typically, using the lessee's incremental borrowing rate.

Leasehold Interest: A leasehold interest is a contract in which an individual or entity, or in real estate terms, a lessee, leases a parcel of land from an owner or lessor for a set period of time. The lessee has the exclusive rights to possess and use as an asset or property for the specified period of time.

Lessee: In a lease agreement, the lessee is defined as the party that pays for the use of the asset or property.

Lessor: One that transfers property (such as a house or a car) by a contract. The lessor is the party that receives payments from the lessee in exchange for the usage of its asset or property.

Liability: In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

Non-Profit Organizations (NPO): A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in contrary with an entity that operates as a business aiming to generate a profit for its owners.

Operating Lease: An operating lease is generally treated like renting. That means the lease payments are treated as operating expenses and the asset does not show on the balance sheet.

Present Value (PV): The current value of a future sum of money based on a specific rate of return. Present value helps us understand how receiving $100 now is worth more than receiving $100 a year from now, as money in hand now has the ability to be invested at a higher rate of return. See an example of the time value of money here.

Right-of-Use Asset (ROU Asset): In accounting, the right-of-use asset (ROU asset) arises from a lease agreement and represents the lessee's license to hold, operate, or occupy the leased property or item over the lease term. The asset is calculated as the initial amount of the lease liability, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received.

Straight Line Amortization: Straight-line amortization is a way of calculating debt repayment where a company allocates the same amount of interest for each payment until it repays the debt in full.

Supplier: A supplier is an entity that supplies goods and services to another organization. A supplier is usually a manufacturer or a distributor. A distributor buys goods from multiple manufacturers and sells them to its customers. Similar Terms. A supplier is also known as a vendor.

Transaction: In QuickBooks, a transaction type identifies what kind of transaction occurred, such as a customer transaction, bill payment or a bank transfer. When you submit a transaction, you type in a transaction code to represent it.