Understanding ASC 842 and its impact on lease accounting

ASC 842 is the lease accounting standard issued by the Financial Accounting Standards Board (FASB). It replaces the older ASC 840 standard and applies to all public and private companies that follow US GAAP. The goal of ASC 842 is to bring most leases onto the balance sheet. This change increases visibility into an organization’s lease obligations and provides a clearer picture of financial health.

One of the major shifts with ASC 842 is that it now requires companies to recognize both right-of-use (ROU) assets and lease liabilities for operating leases, which were previously kept off the books. This applies heavily to real estate leases, which are often long-term and involve significant financial commitments.

The purpose of ASC 842 is to ensure consistency and comparability in financial statements. Investors, regulators, and auditors now have a better view of a company’s financial commitments, which improves decision-making and trust.

Under this standard, leases are classified as either operating or finance leases. Operating leases are similar to rentals, while finance leases (previously called capital leases) are treated more like asset purchases. This classification affects how expenses show up on income statements and balance sheets.

The ASC 842 definition of a lease is also more inclusive. A contract is a lease if it gives the right to control the use of an identified asset for a period in exchange for consideration. This is different from older standards, which excluded many embedded leases and service arrangements.

Resources like LeaseCrunch describe lease accounting as “very confusing,” especially for teams unfamiliar with the changes. This confusion highlights the need for strong tools and support systems. As BDO’s Blueprint publication says, “Accounting for leases can be complex. Make sure you get it right.”

Getting it wrong could lead to compliance issues, inaccurate financial reporting, or even audit red flags. That’s why businesses need reliable lease accounting software to support their transition and ongoing compliance with ASC 842.

How SOFT4Lessee simplifies ASC 842 compliance for real estate leases

Managing compliance with ASC 842 doesn’t have to be difficult. SOFT4Lessee is designed to streamline the entire lease accounting process for real estate portfolios, as well as other leased assets.

The platform handles end-to-end lease agreement management. This includes importing lease data, classifying leases correctly, calculating payment schedules, and tracking changes like renewals or early terminations. Everything is tracked in one place, reducing the risk of errors or oversights.

Journal entries under ASC 842 can become complex quickly. For example, when calculating amortization schedules or adjusting for variable lease payments, many teams need expert help. SOFT4Lessee solves this by using built-in logic to automate these entries. You don’t need to be an accounting expert to get accurate results.

The system also allows you to simulate different scenarios, like using the Effective Date method or the Comparative method, so you can understand the financial impact before finalizing changes. This helps finance teams plan ahead and avoid surprises.

Real estate leases often span multiple years, locations, and currencies. SOFT4Lessee supports this complexity with time-tested features. Whether you're accounting for office leases, manufacturing facilities, or warehouses, you can view all details in one centralized system.

Integration is another key strength. SOFT4Lessee runs on Microsoft Dynamics 365 Business Central and can be used as a stand-alone or export G/L journals to any other ERP like SAP, Oracle, and others. This means data can flow from lease contracts to general ledgers without duplicate entry, saving time and reducing the chance of mistakes.

There’s also a strong emphasis on automation. The system classifies leases based on ASC 842 rules and generates disclosure reports that meet FASB requirements. There’s no need for spreadsheets or manual calculations.

With SOFT4Lessee, you’re not just getting a tool, you’re getting a structured process to help you comply with ASC 842 in the most efficient way.

Key features for managing real estate lease terms under ASC 842

Managing lease terms under ASC 842 requires more than just tracking dates. You need full visibility into every aspect of your lease agreements, and that’s where SOFT4Lessee excels.

The software provides a centralized lease database. You can view all contracts, lease terms, payment schedules, and renewal options from one interface. This is especially helpful for companies with many locations or subsidiaries.

Automated lease term determination is a standout feature. ASC 842 requires companies to consider not just the initial lease term, but also any renewal or termination options that are reasonably certain to be exercised. Manually tracking this can be error-prone. SOFT4Lessee evaluates it automatically, so your calculations are always compliant.

The platform also supports multi-currency and multi-company operations. If you’re leasing in offices in several countries, the software adjusts for exchange rates and local reporting requirements.

Audit trails are another critical feature. Every action is logged - when a lease was modified, who made the change, and what was updated. This transparency is important during internal audits or financial reviews.

You’ll also benefit from robust document management. Upload lease agreements, amendments, and termination notices and link them to the corresponding lease entry. This keeps everything in one place and simplifies audit preparation.

Data can be easily imported and exported via Excel or CSV, and reports are customizable. Whether you need a summary for internal use or a detailed breakdown for auditors, you’ll have the tools to generate it.

SOFT4Lessee is available in both cloud-based and on-premises versions, giving businesses flexibility in how they deploy the system. And with user-based pricing, it works for small firms as well as large enterprises.

Ensuring accurate financial reporting and disclosure

SOFT4Lessee is built with financial reporting in mind. The software produces ASC 842-compliant reports without manual intervention.

You get:

• Automated general ledger postings based on lease activity

• Right-of-use asset and lease liability calculations

• Disclosure reports, including maturity analysis and payment schedules

All calculations follow official FASB guidance. SOFT4Lessee integrates these requirements into its design, so your reports reflect the correct treatment of lease assets and liabilities.

Every number is traceable. You can drill down into how a lease liability was calculated or see the source document tied to a specific journal entry. That means fewer questions from auditors and more confidence in your numbers.

Support and trainings for ongoing compliance

Lease accounting doesn’t stand still. As standards evolve, companies must stay updated. SOFT4Lessee provides strong support to help customers do just that.

You’ll have a dedicated consultant who understands your setup and goals. This person can help you optimize your configuration, answer questions, and plan for changes like acquisitions or lease expansions.

Our website’s Resources section offers articles, videos, case studies, and best practices. Also, customers get access to an Instructions portal with detailed documentation covering answers to the most common questions. You don’t need to dig through complex FASB documents - SOFT4Lessee’s team translates it all into practical guidance.

Training sessions are available for onboarding new staff or updating current users. Whether it’s a 1-hour overview or an in-depth session on lease modifications, your team will have access to what they need.

Comparison with other ASC 842 lease accounting solutions

Many lease accounting tools focus on a narrow slice of the process. SOFT4Lessee covers the full picture.

For example, if your business deals with lease modifications or embedded leases (common in real estate), SOFT4Lessee handles them automatically. Other tools may need manual adjustments or external support.

Frequently asked questions

What is ASC 842, and why is it important?

ASC 842 is a lease accounting standard that requires businesses to record most leases on the balance sheet. ASC 842 aims to enhance transparency and comparability across financial statements by eliminating the distinction between operating and finance leases for disclosure purposes.

How does SOFT4Lessee help with ASC 842 compliance?

It automates lease classification, calculations, reporting, and tracking so you stay compliant without manual work.

What types of leases are covered under ASC 842?

Both operating and finance leases, including real estate, vehicles, and equipment.

Can SOFT4Lessee integrate with our ERP system?

Yes, SOFT4Lessee integrates seamlessly with other systems for lease data import and General Ledger (G/L) export. Our customers commonly use it alongside platforms such as SAP, Oracle, Sage, Xero, and others.

When using Microsoft Dynamics 365 Business Central, no integration is required, as SOFT4Lessee is a native extension built directly within this ERP system.

What are the deployment options for SOFT4Lessee?

It’s available in both cloud and on-premises versions to fit your needs.