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    ASC 842 Federal Accounting Mandate
    • 08 Jul 2024
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    ASC 842 Federal Accounting Mandate

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    • PDF

    Article summary

    ASC 842 is a federal accounting mandate issued by the Financial Accounting Standards Board (FASB) that changes how companies account for leases. This standard, which became effective for public companies in 2019 and for private companies in 2021, aims to improve transparency and comparability by recognizing lease assets and liabilities on the balance sheet. This means that real estate leases that were classified as an operating expense must be documented as a liability instead. Due to this change, the Rent GL Account listed in R365 should be adjusted using the process stated below. Once change is complete, rent will no longer appear on the Profit and Loss statement but rather on the Balance Sheet, since it will be listed as a liability.

    If you have any questions about this mandate, reach out to your CPA for more information.


    Update the Rent GL Account in R365

    Disable the current Rent GL Account and create a new GL Account. Then, create a memorized AP transaction or bank expense for monthly rent charges.

    Step 1: Set up a New GL Account

    A screenshot of a computer  Description automatically generated
    1. Create a new GL Account record for rent.

    2. From the GL Type drop-down, select Current Liability.

    3. Save and close the record.

    Step 2: Disable the Original Rent GL Account

    The original Rent GL Account will no longer be active but will need to stay in the system for historical reporting purposes. For this reason, the original Rent GL Account should be disabled.

    A screenshot of a computer  Description automatically generated

    1. Access the original Rent GL Account record.

    2. Open the General tab.

    3. Select the Subtotal - Disable Entry checkbox.

    4. Save and close the record.

    Step 3: Create a Reoccurring Transaction

    Create a monthly reoccurring Bank Expense/Withdrawal or memorized AP invoice specifically for rent. With this change, rent will now appear on the Bank Reconciliation. Click here to learn how to set up a memorized AP transaction.


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