From the course: Accounting Foundations: Leases
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Yes, financing should be on the balance sheet
From the course: Accounting Foundations: Leases
Yes, financing should be on the balance sheet
- The new lease accounting rule is a big improvement over the old off-balance sheet lease accounting rule. - The existence of three trillion dollars in off-balance sheet operating lease obligations was, frankly, an embarrassment to the accounting profession. - Under off-balance sheet operating lease arrangements, companies entered into long-term contracts for payment for the use of important assets, but those contracts were not reflected anywhere in the balance sheet. - Okay, so how long are these long-term lease contracts? Well, 25 years is not unusual. It seems like if a company signs contracts that involve a 25-year payment obligation, in exchange for using assets for 25 years, then those obligations and those assets should be in the balance sheet. - So let's congratulate the accounting profession for a great improvement in the quality of financial reporting. - Now, yes, the improvement probably took several decades…
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