Accounting and technology meet quite comfortably. The days of using an abacus are long gone as accounting is dominated by high-speed software and computing power. However, as either a business owner or accountant, you have to stay on the ball in the wake of new accounting advancements meaning your tech might need a nifty upgrade, or you’ll need to look at another kind of software altogether. Lease accounting under ASC 842 is a prime example of needing to make sure tech is running right… otherwise, your lease accounting will be completely wrong.
What Is Lease Accounting Under ASC 842
First, let’s look at what’s actually going on with lease accounting under US GAAP at the moment. In essence, lease accounting under ASC 842 refers to the new accounting standard created by the FASB. The standard means you have to account for leases differently. So, update your accounting practices, acquire new software, or speak to your accountant.
You now need to draw up pretty much all of your leases onto the balance sheet, whereas before you didn’t have to. This is because the FASB wants more transparency between businesses. This way, it’s far easier to tell what the difference is between a business that uses leases and one that doesn’t.
How Is Technology Helping Businesses Account for ASC 842
Technology helps with all elements of accountancy. However, when looking at lease accounting under ASC 842 you might need bespoke software. Lease accounting software is essentially software that helps you compute your lease accounting accounts. It’s a great add-on, especially if you have a lot of leases running through your business. Some businesses might have more of a need for lease accounting software than others, but even if you only have a few leases it might be useful because leases are usually quite valuable to a business. They can be a building, heavy machinery, etc…usually business critical and very pricey. So, in these cases, you might want to lease accounting software and technology to help you through.
Why Are Leases So Important To Businesses
Leases are crucial to businesses because they provide a flexible and cost-effective way to acquire and use assets, such as real estate, office equipment, and vehicles. Leasing allows businesses to avoid the high upfront costs of purchasing these assets, as well as the ongoing costs of maintenance and repairs. This can be especially important for small businesses and startups that may not have the financial resources to make large capital investments.
Leases provide businesses with the flexibility to adapt to changing circumstances. For example, a business may need to relocate to a different area or upgrade its equipment to remain competitive. A lease allows a business to do this without having to worry about selling or disposing of the assets it owns. Additionally, leases often include provisions that allow for early termination or the option to purchase the assets at the end of the lease term, providing further flexibility and control for businesses.
Leases can also have tax advantages for businesses. Lease payments are typically tax-deductible, and businesses may be able to claim depreciation on the leased asset, reducing their taxable income. Furthermore, leasing allows businesses to conserve cash and maintain liquidity, which can be important for growth and expansion.
Overall, leases provide businesses with a cost-effective, flexible, and tax-efficient way to acquire and use assets, making them a critical component of many business strategies.
Accountancy and Technology: A Future Forward Relationship
Technology is essential to accounting because it enhances the accuracy, efficiency, and speed of financial operations. Accounting has evolved from manual bookkeeping to computerized systems, and now with the emergence of cloud-based solutions, the technology has revolutionized accounting practices. Accounting software like QuickBooks, Xero, and Sage makes it easy for businesses to track and manage their finances. These software tools provide real-time visibility into financial data, allowing businesses to make informed decisions.
Moreover, technology has automated many accounting processes, including data entry, bank reconciliations, and invoicing. This automation reduces the chances of errors and eliminates the need for manual processing, saving time and effort. Advanced analytics tools help businesses extract insights from financial data, identify trends, and forecast future performance. The integration of technology in accounting has also made it possible for businesses to outsource accounting services to specialized firms that provide cost-effective and efficient services.
Furthermore, technology has made it possible for accounting professionals to work remotely, collaborate with colleagues, and share financial data securely. Cloud-based solutions provide a centralized platform accessible from anywhere with an internet connection. The ability to access financial data from anywhere has made accounting more flexible and has enabled businesses to stay up-to-date with their finances in real-time.
