Every business- large or small- needs a workspace. The workspace can either be bought, rented, or leased. Leasing a property is almost similar to renting. One party is granted the legal right to use the other party’s property, space, equipment, or even software for the contracted period, which may extend for years. When your company leases properties from multiple parties, it can impact your finances positively or negatively. It is indispensable for any company to prioritize, track, and manage its lease payments.
The process of tracking, managing, assessing, and reporting the lease payments and finances can be done by lease accounting. From this article, you will get an insight into the process of lease accounting and its importance.
What exactly is lease accounting?
Lease accounting is the process of recording a company’s leasing activities and studying their impact on its finances. Also, lease accountants ensure that your company is satisfying all the conditions required by the leasing laws. Lease accounting is equally important for both the lessor and the lessee, and the process varies accordingly.
One of the main aspects of lease accounting is the duration of the lease period. Usually, lease accounting has two main categories - finances and operating.
An operating lease is a type of lease where the lessee cannot gain ownership of the property whatsoever. This type of lease has to be reported in the balance sheets only if the lease period is longer than a year. However, they have to be reported in the cash flow statements.
A financial lease or capital lease is a type of lease where the lessee can eventually gain ownership of the property or asset. This type of lease has to be recorded by both the lessee and the lessor in their balance sheets and cash flow statements.
Importance of lease accounting:
Now that you have an understanding of how lease accounting is done, here are a few reasons why the process is highly important for your company:
● Lease accounting gives you an overall analysis of the financial condition of your company by identifying the capital spent on properties and assets.
● It provides insights that can help you build a strategy to increase profits.
● Lease accounting helps you keep track of the lease accounting standards set by the government and cope when the requirements change.
● Lease management and lease accounting helps you record, maintain, and manage all of your financial records in one place.
● You can get a clear picture of the financial health of your company and get professional guidance on improving the same
Why Lease Portfolio 356?
Lease portfolio 365 is a cloud-based lease management and accounting software. We assist companies to manage their lease payments, property-related documents, and other data and reports. We manage their reports, integrate their data, and send timely notifications regarding lease payments. Our services extend to various sectors, from supermarkets and hypermarkets to banking and pharmacies.
Here are a few other reasons why Lease Portfolio is the ultimate lease managing software: