New accounting rules will affect leases

 

Changes to lease accounting standards proposed by the Financial Accounting Standards Board and the International Accounting Standards Board are expected to go into effect in the next several years. These changes will affect financial statements of companies following Generally Accepted Accounting Principles (GAAP).

Currently, as long as an agreement doesn’t meet the criteria of a capital lease, equipment lease payments are considered operating expenses and don’t appear on balance sheets. The new standard would require businesses to list leased equipment as assets and lease payments as liabilities on their books. Including long-term lease commitments as liabilities can potentially reduce a company’s working capital and negatively affect its debt-to-equity ratio, thus potentially affecting its bonding capacity.

Contact us regarding whether and how these changes may affect your construction business.
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