Lessors, Lessees and the New Lease Accounting Standards

A major change brought about by the new lease accounting standards is the new obligation of lessees. Not only is it the lessor’s responsibility to maintain accurate lease-accounting records, but it is also the responsibility of the lessee. 

  • What is a lessor vs. a lessee?  
    • A lessor is the party that provides an asset, like a vehicle or building. 
    • A lessee is the party that receives the asset and makes payments to the lessor over a specified period. 

Example: Leasing a truck 

The lessor and lessee enter into a lease agreement where the lessor provides the truck to the lessee

In return, the lessee makes payments to the lessor for the length of time established in the lease contract. 

New bookkeeping responsibilities for lessees 

Lessees must now record leases on the balance sheet. Under the old standard, capital leases were recorded on the balance sheet while operating leases were not. Now, operating and financing leases will have a lease liability and a right of use (ROU) asset on the balance sheet. This change to record leases on the balance sheet is intended to help create a better picture of a company’s liabilities. 

Learn more about how to successfully transition to the new lease accounting standard.

New bookkeeping responsibilities for lessors 

Depending on which new standard you are on (ASC 842, IFRS 16, or GASB 87), there have been some accounting changes on the lessor side. For ASC 842, there hasn’t been as major a change, but one important item to note is the lease classifications. While the classifications haven’t changed (operating, sales-type and direct financing), the requirements for sales-type and direct financing have changed. 

Lessor or lessee: software saves time 

Although spreadsheets are great for most tasks, they aren’t best for everything. How many times have you had to search for the most up-to-date Excel file because other people created duplicate copies to perform their tasks? How many times have you seen a number or formula that has been inputted incorrectly, drastically changing the result? 

With software, a lot of the small errors that can have massive impacts can be eliminated, which is especially important given the demands of the new lease accounting standards. 

NetLease 

NetLease is the accounting solution for lessees. You need to include lease accounting in your books if you lease or rent: 

NetLease is a software solution that automates and simplifies the new bookkeeping responsibilities of lessees regardless of ERP. Cut out the confusion and skip to the solution.

NetLessor 

NetLessor is our lessor-side accounting solution. As an embedded SuiteApp, no third-party integration is required with NetSuite. However, you must have NetSuite to use it. If you are on NetSuite, NetLessor builds on your existing financial information and automation. 

Learn more about NetLessor here. 

Bottom Line 

Simply put, the lessor is the party that provides an asset to a lessee. In return, the lessee makes payments to the lessor for a specified period according to the lease contract. Both have bookkeeping obligations under ASC 842 that can easily be automated with Netgain software solutions. 

Schedule Demo

Recent Posts

For more information on automating your lease accounting, schedule a conversation with one of our CPAs