Technology

7 Ways Software Can Make Lease Accounting Easier

Due to the incredibly high value of real estate, most people prefer renting apartments, offices, or storefronts. Recent reports show around 44 million rental properties in the United States, making renting a particular space in exchange for money the most common example of leasing today.

However, leasing doesn’t just involve renting out buildings or properties. It can include equipment, tools, vehicles, or any other assets a company requires to run its operations. But if your business rents any of these resources, keeping track of its financial impact on your organization is crucial. The primary reason is that you’ll soon have to face harsh realities if you don’t monitor where your capital is going. Additionally, this is a legal requirement to ensure your business keeps running smoothly and efficiently. 

This process of tracking and monitoring your lease finances is called lease accounting. You must be careful to include them in your financial statements and take every precaution to prevent even minor mistakes. More importantly, since manually handling these puts the finances at risk of human errors, it’s better to automate these steps as much as possible.

Fortunately, with the development of software, you can now do your lease accounting more easily.

Here are the top seven ways how.

Ensures compliance

Financial firms, businesses, and private corporations must all legally comply with the Financial Accounting Standards Board (FASB) policies and standards. For several years, companies would do their lease accounting themselves, but this has become increasingly challenging since the new ASC 842 lease accounting standard became effective. Besides requiring you to enlist lease assets or liabilities for over 12 months, it also compels you to include all relevant obligations regarding your leases within your financial statements.

Because of its increasingly stringent criteria, complying with the ASC 842 standard isn’t easy for finance professionals, regardless of competency. However, software can automatically recognize all the relevant lease assets and liabilities and make the subsequent measurements as required by the Standard. All you need to do is give the software a command for a particular standard, and it will ensure everything else meets the given requirements.

Better budgeting

Forecasting and budgeting decisions heavily depend on how much money you can spend. However, without a proper report or data, making such assessments based on just your calculations can be difficult. If you try doing lease accounting manually, chances are you might miss something. Besides spending plenty of time and resources you can better utilize elsewhere, this strategy might not even give you an accurate representation of your finances.

In contrast, lease accounting software can make it incredibly easy to generate a report within seconds of any particular segment you’re interested in. With this critical information at your fingertips, you can better advise your team when they enter or renew their leases.

Simplifies the process

Navigating the standards and intricacies of a complex leasing agreement is not an easy task. Even qualified accountants might struggle to steer paths and know where to look for an accurate depiction of your lease accounting. However, since oftware automate and streamline most of these processes, plenty of minor operational tasks come under generalized or sub-headings. This makes it easier to access the relevant information in real-time without the hassle of finding the right place to begin with. 

Software also provides plenty of tools and programs for additional calculations and estimations in your financial statements. And since all this is present under one platform, it makes accessibility and dissemination of information a lot more convenient.

Saves overhead costs

All the calculations and processes associated with lease management and accounting are time-consuming, complex, and prone to human error. Therefore, automating the entire procedure can streamline your operations and allocate the company’s resources more efficiently. The software’s incredibly versatile features free up plenty of employee hours, allowing you to reduce hiring costs and even office hours in an organization.

Additionally, every time the FASB updates its standards or policies, you must train all the relevant personnel regarding the compliance protocols for updated guidelines. These trainings aren’t just costly but can take plenty of time before your financial team fully comprehends them. However, software can simply follow instructions and parameters as you feed it, getting ready for lease accounting at no additional cost or time. 

Reduces chances of error

Any discrepancies or errors in financial statements can lead to some costly mistakes. Sometimes, such oversights may even cost you your business and force you to shut down. Fortunately, programmers design the lease accounting software in a way that can centralize all the lease information in a secure digital platform. This ensures the prevention of common human errors like overpayments, late payments, or failure to comply with accounting standards.

Another common mistake is entering the wrong information in financial statements. Whether it’s a one-digit error or five, the consequences for such slipups can be devastating and isn’t something you should take a risk on. Since software can automatically retrieve data directly from source documents, this eliminates the potential for such errors and allows you to forecast more accurately.

Improved interdepartmental collaboration

Within a company, several departments work on lease agreements and contracts, each with its challenges or interests. Without a centralized system, any change in one department won’t be visible to another subdivision until they manually update the design and inform relevant personnel. Besides being incredibly time-consuming, this process isn’t practical since these changes aren’t happening in real-time. 

Fortunately, software allow everyone across various departments to share and communicate the relevant information as it’s happening. This collaborative approach helps optimize lease negotiation strategies, evaluate lease terms, and ensure compliance with accounting standards. Most importantly, it eliminates silos and fosters a more cohesive environment within a company.

Creates a positive impression

A surefire way to impress your clients, stakeholders, and investors is to embrace cutting-edge technologies. This strategy showcases your willingness to continue enhancing financial management and compliance, increasing their trust in your business. 

This is because when a company employs a software for lease accounting, it offers accurate reporting and financial transparency. This commitment resonates well with stakeholders and can improve your overall image as a forward-thinking entity prioritizing excellence in its operations.

Conclusion

As time passes, newly updated, more complex standards will keep arising to ensure efficiency within accounting processes. But while these may be time-consuming and challenging to perform manually, a lease accounting software can simplify and streamline the process, ultimately driving your business to success.

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