Explained: The New Lease Classifications
How have the new lease accounting standards changed lease classification? Watch this 90-second video to see.
Now, capital leases are now going to be called finance leases. The reason, obviously, is being that everything will now be capitalized, so it doesn’t make sense to retain that nomenclature. So, capital leases are now going to be called finance leases. Technically speaking, not much of a change when it comes to accounting for it. It’s just in the name. Capital leases are now going to be called finance leases. There are some changes. However, they’re pretty subtle. We will address some of them as we go through this presentation.
Operating leases retain their name. However, there’s going to be a big change. This is one of those things that, kind of, I find ironic. Things that … It’s almost like whatever something is named, it means that that’s what it’s not. For instance, the Daily Show. It’s called the Daily Show, but it’s really not done daily. It’s only done Monday through Friday. So, it’s not a daily show. Or when they say a place is a right to work space. Well, it doesn’t mean you have the right to work. It means you have the right to be fired.
Essentially, this is kind of that scenario. Capital leases, even though their names change, there’s no change in the accounting. Operating leases, their names do not change. However, there’s a big change to the accounting.