The FASB’s new standards require that business report their leases, as their own unique entries, on their balance sheets. This applies to both property and non-property leases, such as:
The FASB’s guidelines have a significant impact on how businesses report and keep track of their leases. One of the reasons why the FASB took this action was because its standards board discovered that many companies were overestimating their leasing obligations. This could have been intentional—to realize tax savings—or unintentional due to oversight.
Either way, the FASB’s new standards make it important for a business to accurately identify and report its leasing expenses. This directly impacts virtually all industries. For example, any company that rents office, manufacturing, or warehouse space needs to delineate its leasing obligations on its balance sheets. Also, in the construction industry, every time the company rents a piece of equipment, it needs to be reported. Restaurants that lease equipment, such as ovens or commercial dishwashers, will have to keep track of each item on their balance sheets if they want to remain in line with the FASB’s standards.
If a company rents equipment, real estate, or other assets to others, the FASB standards require them to report this on their balance sheets as well. They would categorize this income as “Revenue from Contracts with Customers.”
For instance, suppose a construction company owns two trucks that deliver ready-mix concrete to job sites. While most of their income comes from customers paying them to build, they occasionally rent out one of their trucks, sending an operator to pour concrete for other contractors. To remain in compliance with the FASB’s standards, the company would have to record this income as its own entry on its balance sheets.
JD Edwards makes compliance easier with features that automate some of the work behind adjusting your balance sheets to accommodate the FASB’s standards. These include:
With JD Edwards, you can import the conditions and terms of any of your leases using a regular comma-separated value (.csv) flat file. This can be done in EnterpriseOne with the Z table processing feature.
If you want to add leases without importing, that can be done as well using the standard lease entry system. In this way, you have flexibility as to how you ensure your leases are incorporated into your balance sheet.
You can use JD Edwards Software to make lease liability, as well as right of use amortization schedules before you start following the FASB’s guidelines. This way, you can get your accountants’ input before officially adopting the standard in your JD Edwards lessee accounting.
JD Edwards also allows you to take data from amortization schedules to create an alternate ledger. This feature makes it easier to report lease information retrospectively. Also, you can use this feature before or after adopting the FASB’s standard. This saves time and prevents the confusion and potential errors that could result from manually making an alternate ledger.
For companies that rent real estate, updating your existing leases with the new terms outlined by the FASB’s standards is also straightforward with JD Edwards. If you’re in-between using the old standard and adopting the new one, you can use an option in the Real Estate Constants feature to incorporate the new measures into your system.
With GSI’s JD Edwards consultants, you can take advantage of a full cloud-based JDE implementation. GSI can establish, add-on, manage or upgrade your JDE using a wide range of environments, including public and private cloud, as well as multi- and hybrid cloud—all according to your specific needs. Connect with GSI’s team of JD Edwards experts today to learn more.