When the changes in an accounting standard impact assets or liabilities, we are accustomed to the difference flowing through equity. The new lease standard, ASC 842, is different because equity is not typically impacted in the initial journal entries. It might seem strange to not use your trusty “Cumulative Effect of a Change in Accounting Principle” account when implementing a new standard, yet it’s true - and important to know to ensure that your lease assets and liabilities are properly recorded. So how does it work? Read on to learn more.
If your organization leases just about anything and follows Generally Accepted Accounting Principles (GAAP) in the United States or International Financial Reporting Standards (IFRS) elsewhere, then the new lease standard affects you.
If you’re affected, then you need to know certain key dates, starting with the date by when you have to adopt the new standard.