Lease accounting might not be the first thing that comes to mind when you think about managing your small or medium-sized enterprise (SME). However, understanding the principles of lease accounting, especially when using accounting software like NetSuite, can have a significant impact on your financial health and compliance.

It is essential for SMEs and all businesses to remain regulatory compliance and avoid legal issues or financial penalties. When starting out this can help new businesses build credibility in the industry and maintain trust with customers as one of the building blocks to long-term success. Getting a handle on lease accounting is one of the blind-spots to be aware in your financial management as an SME.

What is lease accounting?

Lease accounting is the process of recording and reporting lease transactions in a company's financial statements. It applies to any business that enters into lease agreements for assets such as real estate, vehicles, or equipment. Acceptable and compliant lease accounting ensures transparency in financial reporting thus heling stakeholders understand a company's financial obligations and performance.

A look at lease accounting regulations

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) recently introduced new lease accounting standards as follows:

• ASC 842 (in the United States); and
• IFRS 16 (internationally)

These standards aim to enhance financial transparency by ensuring that lease obligations are accurately reflected, allowing stakeholders to better understand a company's financial health.

As such the ASC 842 and IFRS 16 require lessees to recognize most lease agreements on their balance sheets. Which means that the way in which lease liabilities and right-of-use assets are reported will be affected for businesses.

How NetSuite makes lease accounting easier

Transitioning to ASC 842 and IFRS 16 can be complex, as organizations need to gather and assess lease data, make system adjustments, and potentially change lease management practices.

While the regulatory requirements may be overwhelming, NetSuite equips organizations to handle these complexities. For SMEs, the software provides an integrated solution that ensures compliance with lease accounting standards and streamlines lease management.

Key features of NetSuite lease accounting

NetSuite lease accounting offers a useful features to simplify lease management in the following ways:

• It offers centralized access to lease agreements: NetSuite provides a centralized database to store all lease contracts, making it easy to access critical lease information.
• It offers automatic calculation: Once it is fed all the right contract information, NetSuite automates lease payment calculations. This reduces the risk of errors in manual calculations.
• It automates balance sheet updates: NetSuite automatically recognizes lease liabilities and right-of-use assets, ensuring compliance with accounting standards while updating your books accordingly.
• It facilitates expense amortization: SMEs can amortize lease expenses over the lease term, providing accurate expense recognition in financial statements. NetSuite lease accounting is set up to take care of this.
• It facilitates lease modification: NetSuite allows for the easy adjustment of lease terms and conditions as your business needs change.
• It offers detailed reporting: NetSuite generates comprehensive reports on lease-related data, aiding in decision-making and financial planning.

3 benefits of NetSuite lease accounting for SMEs

NetSuite streamlines business operations, providing business owners with efficient financial management solutions. NetSuite aids SMEs with lease accounting in the following ways:

1. NetSuite ensures compliance

NetSuite helps SMEs adhere to ASC 842 and IFRS 16, reducing the risk of non-compliance and associated penalties. This means that having access to this software that removes the burden of red tape, allowing you to focus on growing your business.

2. NetSuite simplifies processes

Automation reduces manual effort, saving time and resources in lease management and accounting. Access to comprehensive and complete lease data ensures that lease details such as terminations and modifications can take place swiftly.

3. It encourages informed decision making

Accurately reflecting lease obligations on the balance sheet provides SMEs with a more transparent financial picture. Detailed lease information enables informed decision-making regarding lease conditions

Ready to simplify your lease accounting and ensure compliance with ASC 842 and IFRS 16? NetSuite's lease accounting capabilities are a valuable asset when it comes to ensuring compliance. But, setting the software up in way that is tailored to best serve the needs of your business, can be challenging to do. 

At Fusion CPA, we have years of experience with lease accounting. We can set your NetSuite software up to account for leases and aid your SME with growth development projections and strategies. Contact us for tailored lease accounting solutions and guidance from our experienced accountants.

This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.