Below are eight benefits of using accounting software for your small or medium-sized business (SMBs).

8 Advantages of Accounting Software for SMBs

1. Enhanced Financial Organization

An accounting software provides a comprehensive platform for organizing and managing financial data. By automating repetitive tasks like data entry, invoicing, and expense tracking, businesses can streamline their financial processes, saving time and reducing the likelihood of errors. With a centralized system, businesses can easily access and retrieve critical financial information, facilitating accurate and timely decision-making.

2. Simplified Bookkeeping

Manual bookkeeping can be time-consuming and error-prone, especially for SMBs with limited resources. Accounting software automates essential bookkeeping tasks, such as recording transactions, reconciling accounts, and generating financial statements. By eliminating manual entry and calculations, the software minimizes the risk of human error and ensures accurate financial records.

3. Efficient Invoicing and Payment Management

For SMBs, maintaining a healthy cash flow is vital. Accounting software enables businesses to generate professional invoices, track payment statuses, and send reminders for overdue payments. With automated payment processing capabilities, businesses can expedite cash inflows, reducing the time spent on chasing payments and improving overall cash flow management.

4. Financial Analysis and Reporting

Understanding the financial health of your business is crucial for making informed decisions and setting strategic goals. Accounting software provides robust reporting tools that generate real-time financial statements, profit and loss reports, balance sheets, and cash flow statements. These insights help SMBs identify trends, pinpoint areas of improvement, and make data-driven decisions to drive growth.

5. Time and Cost Savings

By automating financial tasks and reducing manual effort, accounting software saves SMBs valuable time and resources. This allows business owners and finance teams to focus on core operations, customer relationships, and strategic planning. Additionally, minimizing errors and improving financial efficiency can result in cost savings and contribute to overall business profitability.

6. Compliance with Accounting Standards

Adhering to accounting standards is essential for accurate financial reporting and maintaining regulatory compliance. Accounting software is designed to stay up-to-date with the latest accounting regulations, ensuring that your business meets the necessary standards.

For instance, a lease accounting software specifically caters to the complexities of lease accounting, helping SMBs comply with ASC 842 or IFRS 16 guidelines. Let’s deep dive into the benefits of using lease accounting software.

7. Audit Ready Data

Traditional methods of lease management often involve scattered documents, spreadsheets, and manual tracking, making it difficult to pull together accurate and comprehensive information during audits. Lease accounting software centralizes all lease data into one system, allowing businesses to keep detailed, time-stamped records of lease modifications, payments, and other financial transactions. This fosters more transparent and organized data, and reduces the risk of inaccuracies or inconsistencies during an audit.

8. Forecasting and Budgeting

By having all lease-related financial data readily available, businesses can project future lease expenses, track upcoming lease renewals, and estimate how lease obligations will impact future budgets. It also allows businesses to model different scenarios, such as how signing new leases or terminating existing ones would affect their financials. This helps companies align their lease strategies with business goals and ensures that they have the financial flexibility to meet future needs.

There are many things to consider when choosing a lease accounting software. You want to be able to find exactly what your business needs and find a software with a good price and value. Whether you require general small business accounting software or specialized lease accounting software, investing in the right solution will empower your business to thrive and make informed financial decisions that drive growth and success. A quality lease accounting software like Visual Lease’s platform ensures your company can reap all of these benefits for improved financial organization.

Lease Accounting Software for SMBs FAQs

Why is accounting software important for SMBs?

Accounting software centralizes all financial transactions in one system, reducing manual errors and saving valuable time for SMB finance teams. With real-time reporting and automated workflows, business owners gain clear insights into cash flow and operational costs.

What does accounting software do?

Accounting software records, organizes, and tracks a business’s financial activity in one place. It helps SMBs manage day-to-day processes like transaction tracking, reporting, reconciliations, and expense visibility, while specialized lease accounting software also supports lease-specific calculations and compliance reporting.

How does lease accounting software help a small business?

Lease accounting software automates calculations for right-of-use assets and lease liabilities, ensuring accuracy and saving hours of manual effort. It generates audit-ready schedules and disclosure reports, giving small businesses confidence in meeting ASC 842 and IFRS 16 requirements.

Do I need lease accounting software for my small business?

If your small business manages multiple leases or must comply with ASC 842 or IFRS 16 requirements, lease accounting software is essential. The software centralizes lease terms and automates right-of-use asset and liability calculations. It also generates audit-ready reports to reduce errors and save finance teams hours of manual work. Centralized data and real-time reporting improve cash-flow forecasting, risk management, and strategic decision-making as your business grows.

How does accounting software help SMBs maintain compliance with lease accounting standards like ASC 842 and IFRS 16?

Lease accounting software automatically calculates right-of-use assets and lease liabilities according to ASC 842 and IFRS 16 guidelines, eliminating complex spreadsheets. With built-in practical expedients and audit-ready reports, SMBs can confidently meet disclosure requirements and streamline the audit process.

What kind of support and training is available for SMBs?

Visual Lease provides tailored onboarding, live training sessions, and a dedicated customer success manager to guide SMB finance teams. Access to on-demand resources, regular product updates, and proactive best-practice reviews ensure your team maximizes software value from day one.

1. What CAM Charges Are: Common Area Maintenance (CAM) charges cover shared property expenses like lobbies, hallways, parking lots, landscaping, and utilities. CAM fees are the actual amounts tenants pay based on their pro-rata share of the property.
2. Reconciliation and Reimbursement: CAM reconciliation compares estimated fees with actual expenses to ensure fairness. Overpayments result in CAM reimbursements or credits, while underpayments require additional tenant payment.
3. Managing Excessive CAM Charges: Tenants can face overcharges when inappropriate costs are included or fees rise unexpectedly. Clear lease definitions, audit rights, and caps help prevent disputes and ensure cost transparency.
4. Lease Accounting and Operational Insights: CAM charges impact financial statements under ASC 842 and differ from general operating expenses. Understanding CAM and negotiating fees helps tenants forecast occupancy costs and maintain a transparent landlord-tenant relationship.

In the world of commercial real estate leasing, Common Area Maintenance (CAM) charges play a pivotal role, impacting both landlords and tenants. CAM rent, often referred to as CAM fees, can significantly influence a tenant’s overall occupancy costs. n this comprehensive guide, we will delve into the intricate details of CAM charges, demystifying what CAM encompasses, the intricacies of CAM fees in leases, how it differs from operating expenses and implications for lease accounting.

CAM in Real Estate: A Quick Summary

• CAM stands for Common Area Maintenance in real estate
• CAM expenses are the shared property costs tied to maintaining common areas
• CAM charges or CAM fees are the amounts tenants pay toward those shared expenses
• CAM expenses often include landscaping, janitorial services, utilities, repairs, and security
• CAM costs are usually allocated based on a tenant’s pro-rata share of the property

What is Common Area Maintenance (CAM) in Commercial Real Estate?

Common Area Maintenance, or CAM for short, refers to the costs associated with maintaining and operating common areas within a commercial property or complex. These common areas typically include lobbies, hallways, elevators, parking lots, landscaping, and shared facilities like restrooms or fitness centers. CAM charges are an additional expense that tenants may incur beyond their base rent.

What are CAM Charges?

Common Area Maintenance (CAM) charges are the shared expenses that tenants pay to cover the cost of operating, maintaining, and repairing the common areas of a commercial property. These are the spaces and systems that all tenants use—such as lobbies, parking lots, elevators, and landscaping—and are critical to keeping the property safe, clean, and functional.

What is a Common Area Maintenance Fee?

A Common Area Maintenance (CAM) fee—sometimes simply called a CAM rent—is the actual amount tenants pay to reimburse the landlord for maintaining and operating shared spaces within a commercial property. While “CAM charges” refer to the types of expenses included, the CAM fee is the financial obligation tenants owe as part of their lease agreement.

CAM fees are typically billed monthly or quarterly, either as a fixed estimate or as part of the tenant’s rent invoice. These payments go toward covering expenses like landscaping, janitorial services, building maintenance, and other shared costs associated with the property’s operation.

The total CAM fee a tenant pays depends on their pro-rata share of the property’s total leasable area, as outlined in the lease.

What is CAM Reimbursement?

At the end of each year, landlords reconcile estimated CAM fees against actual expenses to determine whether a tenant overpaid or underpaid. If estimated payments exceed the tenant’s actual share of common area maintenance expenses, the landlord may issue a CAM reimbursement as a credit or refund, while underpayments may result in an additional amount due, depending on the lease terms.

By understanding how CAM fees are structured and billed, tenants can more accurately forecast occupancy costs and identify opportunities to negotiate fairer, more transparent lease terms.

What is Included in CAM Charges?

Common Area Maintenance charges encompass a wide range of expenses associated with the upkeep and operation of shared spaces. These expenses can include:

• Property Management: Costs related to property management services, such as salaries, administrative costs, and management fees.
• Utilities: Expenses for common area utilities like electricity, water, gas, and sewer.
• Landscaping and Grounds Maintenance: Costs for maintaining outdoor spaces, including lawn care, tree trimming, and landscaping.
• Janitorial Services: Expenses for cleaning and maintaining common areas like hallways, restrooms, and lobbies.
• Repairs and Maintenance: The cost of repairing and maintaining common elements, including HVAC systems, elevators, parking lots, and structural repairs.
• Security: Costs associated with security services and systems that protect the property and its tenants.
• Insurance: Common area insurance, which covers liability and property insurance for shared spaces.
• Taxes: Some leases include property tax expenses as part of CAM charges.

CAM Fee Calculation in Leases

CAM fees are often a point of negotiation in commercial lease agreements. When tenants lease space in a commercial property, they may be required to pay a share of the CAM expenses. The specific terms and calculations for CAM fees can vary widely depending on the lease agreement.

How CAM Fees are Calculated

The calculation of Common Area Maintenance (CAM) fees can vary depending on the terms outlined in the lease agreement. While there is no one-size-fits-all formula, here’s a general overview of how CAM fees are typically calculated:

• Pro-Rata Share: CAM fees are often allocated based on a tenant’s pro-rata share of the total leasable space within the commercial property. This means that the larger the space a tenant occupies, the greater their CAM fee responsibility.
• Expense Pool: Landlords accumulate all eligible CAM expenses incurred during a specified period, usually a fiscal year. These expenses include property management fees, landscaping costs, utilities for common areas, janitorial services, repairs, and other qualifying expenditures.
• Calculating Tenant’s Share: To determine a tenant’s CAM fee for the period, landlords divide the tenant’s leasable square footage by the total leasable square footage in the property. This ratio is then applied to the total CAM expenses for that period. The formula may look like this:

(Tenant’s Leasable Square Footage / Total Leasable Square Footage) x Total CAM Expenses = Tenant’s CAM Fee

• Annual Reconciliation: Typically, CAM fees are estimated at the beginning of the lease term based on expected expenses. After the fiscal year ends, landlords perform an annual reconciliation. They compare the estimated CAM fees paid by tenants with the actual expenses incurred during that period. Depending on the lease terms, tenants may be required to pay any shortfall or receive a credit for overpayment.
• Caps and Limits: Some lease agreements may include caps or limits on the annual increase in CAM fees to protect tenants from steep cost escalations. This helps tenants maintain cost predictability.

Understanding and managing CAM fees requires clear documentation and consistent oversight, especially when lease terms vary across properties. A platform like Visual Lease can help you centralize lease data and improve accuracy across every aspect of lease management.

What Are Average CAM Costs Per Square Foot?

Average CAM costs per square foot can vary widely based on the property type, location, lease structure, building age, and the specific services included in the charge. For example, a newer office property in a high-cost market may have very different CAM expenses than an older industrial building in a suburban area. Because these costs are not standardized, tenants should review historical CAM reconciliations, prior operating expense statements, and the lease language itself to better understand what is included and estimate likely costs over time.

Excessive CAM Charges

While CAM fees are a standard part of commercial leasing, disputes often arise when tenants believe they are being billed for excessive or inappropriate CAM charges. Excessive CAM charges occur when landlords include costs that fall outside the scope of legitimate common area maintenance expenses or when fees increase dramatically without clear justification.

Common Causes of Excessive CAM Charges

• Improper Expense Allocation: Charging tenants for costs that don’t directly relate to the maintenance or operation of shared areas, such as capital improvements, marketing, or administrative overhead beyond reasonable management fees.
• Lack of Transparency: Limited or unclear reporting on how CAM funds are spent can create confusion or mistrust between landlords and tenants.
• Unexpected Increases: Sharp year-over-year CAM escalations can occur when no caps are in place, or when landlords fail to accurately estimate expenses in advance.
• Inclusion of Non-Recurring or Capital Costs: Some landlords attempt to pass through one-time capital expenditures—like roof replacements or major renovations—that should be amortized or excluded altogether.

How Tenants Can Protect Themselves

• Request Detailed CAM Breakdowns: Ask landlords to provide itemized statements showing what expenses are included in CAM.
• Negotiate Audit Rights: Many tenants secure the right to audit CAM statements annually to verify that billed charges align with the lease terms.
• Set Caps or Limits: During lease negotiations, tenants can request caps on annual CAM increases (often referred to as “CAM caps”) to maintain cost predictability.
• Clarify Inclusions and Exclusions in the Lease: Ensuring the lease clearly defines what expenses can and cannot be included in CAM helps prevent disputes later.

By understanding what constitutes excessive CAM charges and taking proactive steps to manage them, tenants can better control occupancy costs and maintain a fair, transparent relationship with their landlords.

CAM Tips for Tenants

• Review Your Lease Agreement Carefully: When leasing commercial space, it’s crucial for tenants to carefully review the lease agreement, especially the sections related to CAM fees. Tenants should understand how CAM charges are calculated, what expenses are included, and the frequency of CAM reconciliations.
• Negotiating CAM Charges: During lease negotiations, tenants can often seek to limit the scope of CAM charges or cap the annual increase in CAM expenses. These negotiations can help provide cost predictability and protect tenants from unexpected cost escalations.

CAM vs. Operating Expenses

While CAM charges and operating expenses share similarities in that they both involve the upkeep of a commercial property, it’s essential to distinguish between the two:

CAM Charges

CAM charges are specifically associated with maintaining and operating common areas shared by multiple tenants within a commercial property. These expenses are typically billed separately from the base rent and are allocated among tenants based on their pro-rata share of the property’s total leasable space. Common area maintenance charges often cover items like property management, landscaping, janitorial services, utilities for common areas, and common area repairs.

Operating Expenses

Operating expenses, on the other hand, encompass the broader costs associated with running the entire commercial property, including both common areas and tenant-occupied spaces. These expenses may include property taxes, insurance premiums, building-wide utilities, structural repairs, and administrative costs related to the property’s overall operation. Unlike CAM charges, which are usually billed separately, operating expenses are often incorporated into the base rent or charged as a separate line item in the lease agreement.

CAM Considerations in Lease Accounting

CAM charges play a significant role in lease accounting, particularly under ASC 842, which governs lease accounting for both lessees and lessors. CAM charges are a common component of commercial lease agreements and have specific accounting implications:

• Lessee Recognition of CAM Expenses: Under ASC 842, lessees are required to recognize the total lease expense over the lease term on their balance sheet. This expense includes not only the base rent but also any additional payments, such as CAM charges.
• Separate Identification of CAM Charges: Lessees must account for CAM charges separately from the base rent. They should record CAM charges as an expense when incurred, just like rent payments. This requires keeping a clear record of CAM expenses as they are invoiced or reconciled throughout the lease term.
• Initial Recognition and Annual Reconciliation: Initially, CAM charges are estimated based on the lease agreement’s terms, and this estimate is included in the lessee’s total lease liability. However, CAM charges are subject to annual reconciliation. Lessees must adjust their liability and recognize any under- or overpayment of CAM charges in their financial statements based on actual expenses incurred.
• Balance Sheet Impact: Including CAM charges on the balance sheet as part of the total lease liability affects a lessee’s financial ratios and metrics, such as leverage ratios and asset-to-liability ratios. This transparency provides a more accurate representation of the lessee’s financial obligations.
• Income Statement Impact: CAM charges are recognized as expenses on the lessee’s income statement, impacting the lessee’s net income and other financial metrics.

Read our complete guide on ASC 842 requirements to ensure your lease accounting is fully compliant.

Armed with this knowledge, both landlords and tenants can navigate the realm of CAM charges with greater clarity and confidence. Whether you’re a property owner or a tenant, understanding CAM is paramount for making informed decisions and ensuring a harmonious and transparent landlord-tenant relationship in the world of commercial real estate leasing.

Ready to simplify your accounting processes? Lease accounting software like Visual Lease can help you manage all of your commercial leases on a single, organized platform.

The new lease accounting standard requires organizations to include operating leases and financial leases on the balance sheet, which increases visibility into leasing costs and arrangements. This ensures an accurate depiction of company financials. Compliance with ASC 842 is essential for transparency, accuracy, and financial accountability.

The calculations that are involved in staying compliant are extremely susceptible to error – particularly if done without automation.  However, many individuals and organizations initially turn to Excel templates for managing their lease accounting needs. In this blog post, we will explore both Excel templates and technology options for ASC 842 compliance.

Using ASC 842 Excel Templates

Excel templates can seem like a convenient and cost-effective solution for ASC 842 lease accounting. They offer flexibility in customization and can be tailored to an organization’s specific needs. However, setting up and managing Excel templates for ASC 842 compliance comes with its own set of challenges.

Instead of spending the time and energy to set up and troubleshoot ASC 842 Excel templates, you could go straight to a solution built for the job. Visual Lease helps organizations simplify lease accounting with software designed to reduce manual work, improve visibility, and support ongoing compliance.

Learn more about lease accounting software from Visual Lease.

How to Create Customized ASC 842 Excel Templates

Setting up Excel templates for ASC 842 can be a time-consuming process. You’ll need to design templates that accurately capture all lease data, including lease terms, payments, and commitments. Creating these templates from scratch can be complex, and errors in template design can lead to inaccuracies down the line. That said, here are some tips to get you started:

Step 1: Define Your Lease Data Categories

Before you start building the template, it’s crucial to identify the data categories you need to track to comply with ASC 842. Common categories include:

• Lease Details: Lease ID, lease term, commencement date, termination date, etc.
• Payment Information: Monthly/quarterly/yearly lease payments, initial direct costs, etc.
• Lease Modifications: Any changes or modifications to the lease terms.
• Discount Rate: The rate used to calculate the present value of lease payments.
• Lease Liability and Right-of-Use (ROU) Asset: Calculations of these values over time.
• Lease Classification: Operating or finance lease classification criteria.
• Lease Documents: Attachments for lease agreements, amendments, disclosures, etc.

Step 2: Create a New Excel Spreadsheet

Open Excel and create a new blank spreadsheet. You can start with a clean sheet or use Excel’s pre-designed templates as a starting point.

Step 3: Set Up Columns and Headers

In your spreadsheet, create columns for each data category identified in Step 1. Label each column with appropriate headers, such as “Lease ID,” “Commencement Date,” “Lease Term (Years),” “Monthly Payments,” and so on. You can also add headers for any additional information, such as lessor details, lease modifications, and classification criteria.

Step 4: Format and Customize the Template

Format the columns to ensure that data is displayed correctly. You may want to adjust column widths, apply cell formatting (e.g., date format, currency format), and add borders for clarity.

Customize the template further by adding dropdown lists, data validation, or conditional formatting to enforce data consistency and accuracy. For example, you can create dropdown lists for lease classification options or lease modification types.

Step 5: Add Formulas

Incorporate Excel formulas to calculate values automatically. For ASC 842 compliance, you’ll need to calculate the present value of lease payments, lease liability, and ROU asset. These calculations involve using the discount rate and the lease payment schedule.

For instance, you can use the NPV (Net Present Value) function to calculate the present value of lease payments over time.

Step 6: Set Up Tabs and Document Management

Create separate tabs or sheets within the Excel file for lease documents and attachments. Each document should be appropriately labeled and organized for easy reference.

Step 7: Testing and Validation

Before using the template for actual lease accounting, thoroughly test it with sample data to ensure that calculations and formulas work correctly. Validate the template’s accuracy against known lease scenarios.

Step 8: User Training

Provide training to the relevant personnel on how to use the template effectively and input data accurately.

Remember that while this basic Excel template can help you get started with ASC 842 lease accounting, as your organization’s lease portfolio grows, and complexity increases, you may want to consider transitioning to specialized lease accounting software to streamline the process and ensure compliance more efficiently. Such software offers automation, audit trails, and advanced reporting capabilities, reducing the risk of errors and enhancing accuracy.

Best Practices for Data Entry and Formula Setup

When using Excel for ASC 842 lease accounting, implementing best practices for data entry and formula setup is crucial to ensure accuracy, compliance, and efficient lease management. Here are some best practices to consider:

• Consistent Data Input: Ensure that lease data is entered consistently and uniformly throughout the spreadsheet. Use standardized naming conventions and units (e.g., dollars, square feet, months).
• Data Validation: Implement data validation rules to prevent incorrect or inconsistent data entry. Use dropdown lists, date validation, and other data validation features to guide users.
• Data Review: Periodically review and audit the data entered into the spreadsheet for accuracy and completeness. Regularly check for errors, missing information, or discrepancies.
• User Training: Provide training to the individuals responsible for data entry. Ensure they understand the ASC 842 requirements and how to accurately input lease data into the spreadsheet.
• Documentation: Document data sources, assumptions, and any changes made to lease agreements or data. This documentation is crucial for audit purposes and maintaining a clear audit trail.

Best Practices for Document Organization

Keeping track of lease documents within Excel templates can be challenging. Without a centralized repository, it becomes easy to misplace or lose critical documents, which can create audit complications and compliance issues. Here are some best practices for document organization for ASC 842 excel sheets:

1. Use Separate Tabs or Worksheets: Create separate tabs or worksheets within your Excel workbook to store different types of lease documents. For example:
   1. One tab for lease agreements
   2. Another for lease amendments
   3. A tab for disclosures and correspondence
   4. A separate tab for audit documentation

2. Clear and Consistent Naming Conventions: Develop a clear and consistent naming convention for your documents. Include relevant information such as the lease ID, document type, and date. For example: “LeaseID_Agreement_2023-10-24.pdf.”
3. Folder Structure: Consider creating a folder structure outside of Excel to complement your organization. Store actual documents in folders based on lease ID or categories (e.g., active leases, terminated leases, amendments). Excel can reference these documents using hyperlinks or file paths.
4. Hyperlinks: Use hyperlinks within your Excel spreadsheet to directly link to the corresponding documents stored in your folder structure. This allows easy access to documents with a single click.
5. Document Tracker: Create a document tracking table or list within Excel that includes columns for document name, document type, lease ID, location (file path or hyperlink), and any additional notes or comments.
6. Version Control: If you have multiple versions of lease documents (e.g., lease agreements with amendments), clearly indicate the version number or date in the document name. Keep the most recent version easily accessible.
7. Document Index: Consider creating an index sheet within your Excel workbook that lists all lease documents with their associated lease IDs and types. This can serve as a quick reference guide to locate documents.
8. Color Coding and Formatting: Use color coding or formatting to highlight critical information or identify document status. For example, you could use different colors to distinguish between active leases and terminated leases.
9. Document Metadata: Include metadata in your Excel spreadsheet, such as lease start and end dates, lessor information, and lease classification. This allows you to quickly filter and sort documents based on key criteria.
10. Regular Auditing: Periodically review your document organization system to ensure that it remains up-to-date and compliant with ASC 842 requirements. Remove obsolete documents and update document links if necessary.
11. Backup and Security: Ensure that you have appropriate backup and security measures in place for your document storage system, especially if it contains sensitive lease information.
12. Training: Train your team members on the document organization system to ensure everyone understands how to access and manage lease documents effectively.

Excel Templates vs Lease Accounting Software for ASC 842

Transitioning to specialized lease accounting software like Visual Lease offers several advantages over Excel templates:

1. Data Accuracy and Automation

Lease accounting software automates data entry and calculations, reducing the risk of errors and ensuring compliance with ASC 842.

2. Enhanced Security

Lease accounting software typically comes with robust security measures, safeguarding sensitive lease data from potential breaches.

3. Version Control and Collaboration

Software solutions facilitate version control and collaboration among team members, ensuring that everyone is working with the latest, most accurate data.

4. Audit Readiness

Lease accounting software streamlines audit processes by providing auditors with easy access to accurate, well-organized lease data.

Leaving cumbersome spreadsheets for a purpose-built platform

While Excel templates may initially seem like a cost-effective solution for ASC 842 lease accounting, their limitations and potential pitfalls can lead to compliance issues, security risks, and inaccuracies. To ensure compliance with ASC 842 and streamline lease accounting processes, organizations should consider transitioning to specialized lease accounting software like Visual Lease. Making this transition can save time, reduce errors, enhance security, and ultimately contribute to more accurate and efficient lease accounting practices. Learn more about switching from Excel to Visual Lease.

In any lease agreement, there are two core parties: the lessor and the lessee. The lessor is the party that owns the asset and grants the right to use it. The lessee is the party that pays to use that asset for a set period under agreed terms.

This relationship applies across many lease types, including commercial real estate, office space, equipment, vehicles, and even residential property. While the basic structure is simple, the responsibilities of each party can differ based on the lease terms, the asset involved, and the accounting treatment required under standards such as ASC 842.

Understanding the difference between a lessor and a lessee helps organizations manage lease obligations more accurately, assign responsibilities clearly, and maintain stronger lease accounting processes.

What is a lessee?

A lessee is the person or organization that pays to use an asset owned by someone else. In a lease agreement, the lessee is granted the right to use the leased asset for a specified period of time in exchange for regular payments, typically referred to as rent or lease payments.

For example, a company renting office space is the lessee. A business leasing forklifts for warehouse operations is also the lessee. In both cases, the lessee uses the asset but does not own it.

What is a lessor?

A lessor is the person or organization that owns an asset and leases it to another party. In exchange for lease payments, the lessor gives the lessee the right to use that asset for a specific period under the lease agreement.

For example, a landlord renting office space to a tenant is the lessor. A financing company that leases vehicles or equipment to a business is also a lessor. In each case, the lessor keeps ownership of the asset unless the agreement states otherwise.

Who is the lessor and who is the lessee in a lease agreement?

In simple terms, the lessor owns the asset and the lessee pays to use it.

A good way to think about it is this:

• The lessor is the owner or provider
• The lessee is the user or tenant

For example, in an office lease, the building owner is the lessor and the business renting the space is the lessee. In an equipment lease, the leasing company is the lessor and the company using the equipment is the lessee.

Key responsibilities of a lessor

Depending on the lease terms, a lessor may be responsible for:

• Granting the legal right to use the asset
• Maintaining ownership of the asset
• Setting lease terms and collecting payments
• Handling certain maintenance, taxes, or insurance obligations
• Classifying the lease correctly for accounting purposes

Key responsibilities of a lessee

Depending on the lease terms, a lessee may be responsible for:

• Making lease or rent payments on time
• Using the asset according to the agreement
• Maintaining the asset or returning it in required condition
• Covering certain operating costs, such as utilities, taxes, or repairs
• Recording lease obligations correctly for accounting and reporting

The exact responsibilities of each party depend on the lease agreement. In some leases, the lessor handles more property-related obligations. In others, the lessee may take on a larger share of costs and day-to-day responsibilities.

Common types of leases for lessors and lessees

Lessors and lessees can enter into many types of lease agreements. The terms and responsibilities may vary depending on the asset and the structure of the lease.

Common examples include:

Real estate leases

These can include commercial office leases, retail leases, industrial leases, and residential leases. In these agreements, the lessor owns the property and the lessee pays for the right to occupy or use it.

Equipment leases

Businesses often lease machinery, medical devices, printers, or warehouse equipment instead of buying them outright. In this case, the equipment owner or leasing company is the lessor, and the business using the equipment is the lessee.

Vehicle leases

A vehicle lease allows an individual or business to use a car, truck, or fleet vehicle for a set term. The dealership, financing company, or asset owner is the lessor, while the driver or company using the vehicle is the lessee.

Operating and finance leases

From an accounting perspective, leases are often classified as operating or finance leases. For lessors, lease classification may include operating, sales-type, or direct financing leases under ASC 842. For lessees, lease classification generally falls into operating or finance categories.

No matter the lease type, it is important to understand which party owns the asset, which party controls its use, and which responsibilities belong to each side under the agreement.

Lease accounting considerations for lessors vs lessees

Although different types of leases exist, such as finance and operating leases, the obligations have one thing in common. When it comes to lease accounting, leases must be reported accurately to meet regulatory compliance standards.

Lessor accounting obligations

Accurate accounting is vital to the health of any organization. As a lessor, accounting accuracy requires correctly classifying your leases, whether as sales-type, direct financing or operating.

Under lease accounting standard ASC 842, ownership transfers to the lessee for accounting purposes for sales-type and direct financing leases. Sales-type leases require lessors to derecognize the underlying asset and instead recognize the lease’s net investment, selling profit or loss arising from the lease, and track the balance and interest income over time. Lessors record direct financing leases in a similar manner but defer the asset’s profit or loss.

Operating leases give the lessee the right to use the asset but not ownership of it. Therefore, lessors record the asset, its related depreciation and lease payments in the books.

Lessee accounting obligations

Lessees must classify their leases as either finance or operating under the ASC 842 lease accounting standard. Both types of leases must appear in the organization’s balance sheet unless the term is 12 months or less, which is considered a short-term lease. For operating leases, lessees are expected to record payments as operating costs on the organization’s income statement.

Impact of ASC 842 commercial lessors and lessees

How lease agreements are presented on balance sheets has changed for both lessors and lessees under ASC 842. Lessees now need to list all leasing obligations, including operating leases, on the balance sheet, categorizing them as either operating or finance leases. Lessors, who were already classifying leases, are less affected. Accurate classification and accounting are essential, and lease management software can assist in meeting these new requirements.

Whether you are a lessor or a lessee, using a robust software solution like Visual Lease can help maintain accurate lease accounting and protect the financial health of your business.

What ASC 842 requires for journal entries

Journal entries for ASC 842 lease accounting standards are an essential requirement, but they are really only the starting point for accurate and favorable lease accounting and financial reporting.

They affect balance sheet accuracy, expense recognition, disclosures, and close efficiency. For most leases longer than 12 months, lessees must recognize a lease liability and a right-of-use asset. From there, accurate accounting depends on proper classification, measurement, and ongoing journal entries throughout the lease term.

At lease commencement, both operating leases and finance leases require recognition of:

• A lease liability measured at the present value of remaining lease payments
• A right-of-use asset, generally measured from the lease liability and adjusted for items like initial direct costs, lease incentives, and prepaid rent

After commencement, the accounting changes by lease type:

• For an operating lease, the lessee typically records a single lease expense on a straight-line basis over the lease term, while the lease liability is reduced using the effective interest method and the right-of-use asset is adjusted as the balancing amount.
• For a finance lease, the lessee records interest expense on the lease liability and amortization expense on the right-of-use asset separately. 

Operating lease vs. finance lease journal entries under ASC 842

An operating lease still goes on the balance sheet under ASC 842, but the income statement effect is usually a single straight-line lease cost. The liability is measured using the present value of lease payments, and the right-of-use asset is measured from that liability, adjusted for incentives and initial direct costs.

In later periods:

• Cash reduces the lease liability
• Interest is accreted on the liability
• Lease expense stays generally level over the lease term
• The right-of-use asset is reduced by the difference between straight-line lease expense and the interest accretion on the liability

A finance lease starts with the same initial recognition entry, but subsequent accounting differs. Instead of one lease expense line, the lessee records separate interest expense and amortization expense. That usually creates a front-loaded total expense pattern compared with an operating lease. 

Learn more about the differences between operating and finance leases here.

How to calculate the initial ASC 842 journal entry

Before you book the first entry, identify the inputs that drive measurement:

• Fixed lease payments
• Payments tied to an index or rate, measured using the index or rate at commencement
• Lease term, including renewal periods that are reasonably certain
• Discount rate, typically the rate implicit in the lease if readily determinable, or the incremental borrowing rate if not
• Initial direct costs
• Lease incentives
• Prepaid rent

A basic initial entry for either an operating lease or a finance lease is:

Debit Right-of-Use Asset
Credit Lease Liability

If there are initial direct costs, prepaid rent, or lease incentives, those adjust the right-of-use asset at commencement.

ASC 842 operating lease journal entries example

Assume a company signs a 3-year office lease with annual payments of $12,000 paid at year-end. The discount rate is 5%. The present value of the lease payments is approximately $32,697. There are no initial direct costs, prepaid rent, or lease incentives.

Initial recognition entry

Debit Right-of-Use Asset $32,697
Credit Lease Liability $32,697

This reflects the present value of future lease payments at commencement. That is the same starting point used for both operating and finance leases.

Year 1 operating lease journal entry concept

For an operating lease, total lease expense is straight-lined over the lease term. In this example, the annual lease expense is $12,000. Interest on the lease liability in Year 1 is about $1,635, which means the reduction to the right-of-use asset is the plug needed to keep total lease expense at $12,000.

A simplified operating lease entry for Year 1 would be:

Debit Lease Expense $12,000
Credit Lease Liability $1,635
Credit Right-of-Use Asset $10,365

Then, when the cash payment is made:

Debit Lease Liability $12,000
Credit Cash $12,000

This is why operating lease accounting often looks different behind the scenes than it does on the income statement. The liability follows an interest method, but total lease expense remains generally straight-line.

ASC 842 finance lease journal entries example

Use the same fact pattern: 3 years, annual payments of $12,000, 5% discount rate, and an initial present value of $32,697.

Initial recognition entry

Debit Right-of-Use Asset $32,697
Credit Lease Liability $32,697

Year 1 finance lease journal entries

Interest expense in Year 1 is about $1,635.

To record interest:

Debit Interest Expense $1,635
Credit Lease Liability $1,635

To record amortization of the right-of-use asset on a straight-line basis over 3 years:

Debit Amortization Expense $10,899
Credit Right-of-Use Asset $10,899

To record the lease payment:

Debit Lease Liability $12,000
Credit Cash $12,000

Unlike an operating lease, the finance lease shows separate interest expense and amortization expense.

Common ASC 842 journal entries across the lease lifecycle

Commencement date entry

At commencement, both lease types usually begin with recognition of the lease liability and right-of-use asset.

Lease payment entry

Each payment reduces the lease liability and cash. The related expense pattern depends on whether the lease is operating or finance.

Lease incentives

Lease incentives reduce the initial measurement of the right-of-use asset.

 Initial direct costs

Initial direct costs generally increase the right-of-use asset for lessees at commencement.

Re-measurement and modifications

If lease payments change based on a reassessment, modification, extension, or certain other lease events, the lease liability may need to be remeasured and the right-of-use asset adjusted accordingly.

Short-term lease accounting

If the lease qualifies for and uses the short-term lease election, the lessee does not recognize a lease liability and right-of-use asset. Instead, lease expense is generally recognized over the lease term, similar to legacy treatment.

Best practices for more accurate ASC 842 journal entries

To optimize your lease accounting outcome, you need business intelligence that helps you:

• Understand how lease accounting impacts your financial reporting
• Examine lease accounting details for different parts of your lease portfolio and different segments of your business
• Make lease accounting choices that result in the best possible financial picture for your organization
• Make better decisions about leasing moving forward

Strong execution usually includes centralized lease data, consistent classification policies, accurate amortization schedules, and reporting that lets accounting teams review balances by entity, department, period, and account. Competing content often covers the journal entries themselves, but not the reporting discipline needed to support them during close and audit. 

How Visual Lease supports ASC 842 journal entries

Once the accounting is right, the next priority is making journal entry data usable across the organization.

Large organizations have mountains of financial data. But for that data to be useful for making decisions and improving outcomes, you need the ability to dig in and see that data in a variety of ways.

That’s exactly what we’ve provided with the new Visual Lease journal entry summary report. Using this powerful new tool based on data warehouse and analytics technology, you can view journal entry information across your entire lease portfolio. And, best of all, you can slice and dice it to see exactly what you need, when you need it.

For example, you can look at:

• Journal entries for different reporting entities within the larger organization
• An analysis of leasing information by department
• Lease accounting impacts for a month, quarter or year
• Lease dates, debits and credits to determine account balances for your balance sheet

ASC 842 Journal Entries: Think Beyond the Basics

The most effective ASC 842 journal entry process covers more than the initial debit and credit. It includes correct classification, accurate present value calculations, right-of-use asset adjustments, consistent subsequent measurement, and reporting that supports review and audit readiness. For teams looking to streamline the process further, automated journal entry integrations can also help reduce manual work and improve accuracy. When those pieces work together, journal entries become easier to manage and far more useful for decision-making.

Request a demo to see how Visual Lease helps turn ASC 842 journal entries into clearer reporting, real-time visibility, and better decision-making.

NEW YORK – Visual Lease (“VL”), a CoStar Group (NASDAQ: CSGP) brand and platform for integrated lease management, accounting, reporting and analytics, today announced it has been named “Overall Analytics Platform of the Year” in the FinTech Breakthrough Awards program. 

The FinTech Breakthrough Awards recognize the world’s most innovative financial technology companies, products, and services across categories including Analytics, Digital Banking, Payments, RegTech, InsurTech and more. The recognition highlights Visual Lease’s ability to break through a crowded fintech market by delivering actionable insights that help finance and real estate leaders navigate complexity, manage risk and plan strategically. 

CoStar Group acquired Visual Lease in 2024 to complement its CoStar Real Estate Manager business line. By centralizing lease data and applying advanced analytics, Visual Lease enables finance and real estate leaders to gain real-time visibility into lease obligations, costs, risks, and opportunities across their portfolios. The platform supports compliance with accounting standards, enhances collaboration across finance, real estate, legal, and IT teams, and equips organizations with the flexibility to adapt as business needs evolve. 

“Our platform was built to go beyond compliance and reporting,” said Mark McDonald, President of Visual Lease and CoStar Real Estate Manager. “Our customer research shows that leaders are using accurate, centralized lease data to improve forecasting, guide real estate decisions, and strengthen collaboration across finance and real estate teams. Being recognized as Overall Analytics Platform of the Year affirms our mission to help organizations turn lease data into a competitive advantage as they plan for 2026 and beyond.” 

This award adds to Visual Lease’s growing momentum as a trusted partner for finance and accounting teams seeking modern, data-driven solutions to manage lease accounting and reporting requirements. 

About Visual Lease (VL) 
Visual Lease (“VL”), a CoStar Group company, is a premier platform for integrated lease management and lease accounting, trusted by enterprises worldwide to navigate complex portfolios with precision and ease. As the centralized system of record for all lease-related financial, operational, and legal data, VL is purpose-built to support every team involved in managing a company’s leased and owned assets. Informed by nearly three decades of experience, our platform integrates lease management, lease accounting, and sustainability reporting, enabling organizations to save time, mitigate risks, reduce costs, and support sustainability initiatives. Our award-winning software is used by 1,500+ organizations to manage more than 1 million real estate, equipment, and other leased asset records globally. For more information, visit VisualLease.com. 

About CoStar Group 
CoStar Group (NASDAQ: CSGP) is a global leader in commercial real estate information, analytics, online marketplaces, and 3D digital twin technology. Founded in 1986, CoStar Group is dedicated to digitizing the world’s real estate, empowering all people to discover properties, insights, and connections that improve their businesses and lives. 

CoStar Group’s major brands include CoStar, a leading global provider of commercial real estate data, analytics, and news; LoopNet, the most trafficked commercial real estate marketplace; Apartments.com, the leading platform for apartment rentals; Homes.com, the fastest-growing residential real estate marketplace; and Domain, one of Australia’s leading property marketplaces. CoStar Group’s industry-leading brands also include Matterport, a leading spatial data company whose platform turns buildings into data to make every space more valuable and accessible; STR, a global leader in hospitality data and benchmarking; Ten-X, an online platform for commercial real estate auctions and negotiated bids; and OnTheMarket, a leading residential property portal in the United Kingdom. 

CoStar Group’s websites attracted over 143 million average monthly unique visitors in the third quarter of 2025, serving clients around the world. Headquartered in Arlington, Virginia, CoStar Group is committed to transforming the real estate industry through innovative technology and comprehensive market intelligence. From time to time, we plan to utilize our corporate website as a channel of distribution for material company information. For more information, visit CoStarGroup.com. 

Media Contact 
Matt Blocher
CoStar Group
mblocher@costargroup.com
202.346.6775 

However, there is a third crucial financial report often overlooked: Statement of Cash Flows. While the Income Statement and Balance Sheet offer important data, the purpose of the Statement of Cash Flows is to bring the bigger picture together, showing the actual movement of cash in and out of the business. Cash is what keeps a business running, and Cash Flow Statements offer a clear view of where that cash is coming from and where it’s going.

What is a Statement of Cash Flows?

A statement of cash flows is a financial report that summarizes how cash moves through a business over a specific period, such as a month, quarter, or year. The Statement of Cash Flows provides insight into a company’s liquidity, which is vital for assessing the ability to meet short-term obligations and invest in growth.

It organizes cash activity into three categories:

• Operating activities – cash generated or used by day-to-day business
• Investing activities – cash used to buy or received from selling long-term assets
• Financing activities – cash from borrowing, repaying debt, or issuing equity

Together, these sections reconcile beginning cash to ending cash, showing whether cash increased or decreased during the reporting period.

Why is the Statement of Cash Flow Important?

The statement of cash flows is important because most businesses use accrual accounting, which records revenue and expenses when they are earned or incurred, not when cash is received or paid. As a result, profitability on the income statement does not always reflect how much cash the company has available.

For example, under accrual accounting, if you sign a five-year lease with the first six months rent-free, you don’t simply report zero lease expenses for the first six months. Instead, the expenses are evenly spread over the entire lease term, even if no cash changes hands initially.

While the accrual method of accounting provides a more accurate picture of the company’s financial obligations and profitability, it doesn’t reveal how much cash the company has at the moment. The statement of cash flows fills this gap by showing the actual cash collected and spent during the period, helping investors, lenders, and leadership evaluate liquidity and the company’s ability to meet short-term obligations and fund growth.

What Does a Cash Flow Statement Show?

A cash flow statement shows how cash actually moves through a business during a reporting period. It highlights whether cash is being generated from everyday operations, invested in long-term assets, or raised through financing activities. Together, these categories explain why cash increased or decreased and how sustainable a company’s cash position is.

Cash Flows from Operating Activities

This section includes the day-to-day cash transactions related to the core operations of the business. For example, it shows cash outflows from purchasing raw materials or paying wages and inflows from selling goods or services.

Cash Flows from Investing Activities

These cash flows stem from purchasing or selling long-term assets, such as property, equipment, or securities. If a company buys machinery to produce its products, that would fall under investing activities.

Cash Flows from Financing Activities

This includes cash inflows and outflows related to equity and debt. Examples are taking out a loan (an inflow) or paying off the principal on that loan (an outflow). This section is particularly important for startups or companies with fluctuating cash flows that may rely on external financing to fund operations.

Cash Flow Statement Example

Below is an example of a simplified statement of cash flows for a hypothetical company for the year ended December 31.

Example Statement of Cash Flows

Cash Flows from Operating Activities

• Net income: $450,000
• Depreciation and amortization: $120,000
• Increase in accounts receivable: ($80,000)
• Increase in accounts payable: $55,000

Net cash provided by operating activities: $545,000

Cash Flows from Investing Activities

• Purchase of equipment: ($300,000)
• Sale of fixed assets: $50,000

Net cash used in investing activities: ($250,000)

Cash Flows from Financing Activities

• Proceeds from long-term debt: $200,000
• Repayment of loan principal: ($150,000)
• Dividends paid: ($75,000)

Net cash used in financing activities: ($25,000)

Net increase in cash: $270,000
Cash at beginning of period: $180,000

Cash at end of period: $450,000

How to Read This Example Cash Flow Statement

The company invested heavily in equipment, resulting in negative investing cash flow, which may indicate investment in future growth. Financing activity was relatively modest, with new debt largely offset by principal repayments and dividends.

Together, these sections explain why cash increased by $270,000 during the year and how operating, investing, and financing decisions contributed to that change.

The Importance of Differentiating Cash Flows

A key aspect of the Statement of Cash Flows is not just report cash inflows and outflows but differentiating between operational, investing, and financing activities. For example, you may have plenty of cash, but if most of it comes from financing activities (debt), that’s not necessarily sustainable in the long run. While  some debt can be healthy, the company needs a balance of cash inflows from regular operations to be sustainable.

Investors care deeply about liquidity, the ability to convert assets into cash to pay bills. A strong Statement of Cash Flows that shows healthy operating cash flows can reassure investors about a company’s long-term viability.

Handling Leases in the Statement of Cash Flows

Lease payments, whether from finance leases or operating leases, also show up in the Statement of Cash Flows. How these payments are classified varies based on the type of lease:

Finance Leases

Financial leases are treated similarly to debt. The principal portion of lease payments is considered a financing activity, while the interest portion is considered interest paid, which might be recorded as an operating or financing activity depending on the company’s accounting policy.

Operating Leases

Operating Leases are simpler, lease payments are treated as cash outflows from operations. There’s no ownership transfer at the end of an operating lease, so the payments are considered a standard operational expense.

For companies using complex lease agreements, understanding how to categorize cash flows correctly is crucial. Some companies may want to differentiate the interest and principal components of their lease payments even for operating leases. This is where a specialized accounting software can simplify the process. It helps companies manage the nuances of lease accounting under standards like Topic 230 of the accounting code, which governs the treatment of interest in the Statement of Cash Flows.

Statement of Cash Flows in Short-Term Leases

Short-term leases, those lasting 12 months or less, are handled differently. Most companies opt for the practical expedient, excluding these leases from recognition as assets and liabilities. In the Statement of Cash Flows, short-term leases are reported as operational cash outflows, and there is typically no need for straight-lining or other complex accounting treatments.

However, even though they are pair  together under operating activities, companies are required to distinguish cash flows from short-term leases from those of other operating leases in their reporting.

Cash Flows Statements Disclosure Requirements

Disclosure is another key aspect of lease accounting and the statement of cash flow. Alongside cash flows from leases, companies must disclose their future cash obligations for the next five years and beyond. This gives stakeholders insight into future financial commitments and how they might affect cash flow down the road.

In particular, businesses must demonstrate their ability to meet non-current (longer-term) cash obligations with their available cash and operational cash inflows. If they can’t, it could be a red flag for investors and lenders.

The Role of Software in Cash Flows Statement Management

With the complexities involved in properly accounting for leases and cash flows, Visual Lease software solutions become invaluable. For instance our software helps businesses comply with lease accounting standards, accurately segregating operating from financing activities, and automating the calculation of interest and principal components for leases. It simplifies the process of preparing financial statements and ensures accuracy and transparency for stakeholders.

By using tools like Visual Lease, companies can navigate the complexities of lease accounting, ensure compliance, and provide investors with the transparency they need to make informed decisions. In an increasingly complex financial world, understanding and managing cash flow has never been more important.

Under the FASB ASC 842 standard for lease accounting, organizations face significant changes including both new disclosures and specific requirements for how to report those disclosures.

For instance, in the first year of ASC 842 adoption, public companies must provide the annual disclosures required by the new accounting standard in each quarterly report. That is, they must include the disclosures in their first, second and third quarter Form 10-Q filings. (See also tip #6 below.)

Thinking ahead and planning for disclosure requirements is crucial for initial ASC 842 adoption as well as ongoing compliance. It helps to ensure that lease accounting and reporting are thorough and accurate.

In this blog, we offer 6 tips on what to disclose in ASC 842 reporting. These tips can help you meet the new requirements and satisfy auditors, whether your organization is:

• Preparing for compliance and for issuing your first financial statements under ASC 842
• Post-ASC 842 adoption and looking for ways to improve the reporting process moving forward

Tip #1: Disclose how you determined your lease discount rates.

Are lease discount rates relevant to your financial reporting? If so, the ASC 842 standard requires you to disclose how you determined those rates, including any related assumptions and judgments.

For most lessees, the discount rate is their incremental borrowing rate (IBR). However, providing a generic disclosure that just repeats the ASC 842 definition of IBR will not satisfy this disclosure requirement.

Instead, you should provide specific information on how you determined the IBRs reflected in the measurement of your leases, including: 

• What inputs you used
• What adjustments you made to those inputs in estimating your discount rates
• Whether you took a portfolio approach, determining an IBR for a group of leases

Tip #2: Determine the ROU asset carrying amount in your operating leases.

Unless the value of a right-of-use (ROU) asset in an operating lease is impaired, you need to determine the carrying amount of the ROU asset from the date the lease started through the end of the lease term.

You can do this using one of two methods:

Method 1: Derive the carrying amount of the ROU asset from the carrying amount of the lease liability at the end of each reporting period as follows.

Method 2: Calculate ROU asset amortization as the difference between the straight-line lease cost for the period (including amortization of initial direct costs) and the periodic accretion of the lease liability using the effective interest method as follows.

Tip #3: Disclose if you chose to not separate lease and non-lease components.

An ASC 842 practical expedient allows companies to save time by calculating the value of fixed lease payments without having to perform an allocation to the lease and non-lease components.

However, if you choose to take advantage of this practical expedient and not separate lease components from non-lease components, you must also:

• Disclose that you elected to apply this practical expedient
• Disclose the class(es) of underlying assets for which you elected it — for example, perhaps you applied it to all your real estate leases but not your equipment leases

Read more about this and other practical expedients in our blog ASC 842 Practical Expedients and Transition Requirements.

Tip #4: Disclose variable lease costs and short-term lease costs separately.

The lease accounting standard under ASC 842 requires that you disclose your variable lease costs and short-term lease costs separately rather than as a single amount.

Where do variable short-term lease costs belong?

Since it is not uncommon to have short-term leases that include variable payments, you might wonder: Should you disclose these costs along with other short-term lease costs? Or should you include them with variable lease costs?

As a rule, you should disclose variable short-term lease costs with other short-term lease costs. However, since ASC 842 is not clear in this regard, disclosing variable short-term lease costs with variable lease costs would also be acceptable.

Either way, be sure to disclose where you choose to include variable short-term lease amounts in your quantitative lease cost disclosures.

What qualifies as a variable lease cost?

It is important to disclose all amounts that meet the definition of variable lease costs. That is,  disclose not only costs related to the performance or use of the underlying asset (such as percentage rent or per-usage fees), but also any other variable payments not included in the measurement of the lease liability. For example:

• Incremental rent above the amount included in the lease liability and paid during the year due to a change in the Consumer Price Index (CPI)
• The portion of property taxes or insurance payments attributable to the lease component — or the entirety of those payments if you elected not to separate lease and non-lease components
• The portion of common area maintenance (CAM) charges or other service payments attributable to the lease component — or the entirety of the payments if you did not separate lease and non-lease components

Tip #5: Disclose the nature of your variable lease payments.

The ASC 842 lease accounting standard also requires companies to disclose information about the nature of their leases. This greater level of detail allows auditors, stakeholders and other interested parties to better understand a company’s leasing strategy and how its future lease payment obligations may differ from the lease liabilities on the balance sheet.

If your variable lease costs are relevant, and especially if they are a significant portion of your company’s total lease costs, you should provide detailed disclosures about those payment arrangements, including information such as:

• Why you have a significant number of variable payments
• The basis, terms and conditions you used to determine the variable lease payments
• Expectations of, and the reasons for, variability in amounts owed from period to period

Tip #6: Carry forward ASC 840 comparative disclosures as required.

If your company has elected the effective date transition method for transitioning to ASC 842, you do not need to revise the financial statements for comparative periods presented before your ASC 842 adoption date, nor provide ASC 842 disclosures for periods before that date.

However, this transition method does include some important new requirements for carrying over comparative disclosures from ASC 840.

Namely, in your post-adoption financial statements, you must carry forward all the disclosures that were required under ASC 840 for comparative periods before the effective date. This includes the final disclosures of future operating and capital lease commitments prepared as of the last balance sheet to which ASC 840 applied.

You must present the disclosures that you carry forward in each set of interim and annual financial statements  — for example, in your quarterly and annual reports — issued for the year of adoption.

How are retrospective restatement and comparative period adjustments handled?

When preparing comparative financial statements, ASC 842 requires companies to apply transition guidance consistently and treat prior periods in accordance with the elected transition method. If retrospective restatement is required, lease schedules and disclosures for earlier periods must be recalculated under ASC 842 using the appropriate discount rates and assumptions for those periods. When companies elect the effective date transition method instead, comparative periods continue to reflect ASC 840, and only ASC 840 disclosures are carried forward. This ensures transparency while avoiding the need to fully restate prior financial statements.

For accurate, consistent and thorough reporting…

Keeping these disclosures and other ASC 842 lease accounting requirements in mind as you gather and abstract your lease data will help to ensure the accuracy, consistency and thoroughness of your financial reporting.

Additionally, the use of a lease accounting solution such as Visual Lease will further help by providing a single centralized source for storing, tracking and managing lease data, with configurable tools for lease calculations and reporting, as well as integration to the balance sheet.

To learn more about the lease disclosure requirements, read our blog 3 Things to Consider When Generating Lease Accounting Disclosure Reports.

1. Get a preview of your financial reporting

You can get that information well before you’re ready to go live using the hypothetical testing features in Visual Lease’s platform. You can generate a preview even if you haven’t imported all your data yet. Just do a bulk upload of test data. Then you can generate a hypothetical disclosure analysis to see what your numbers will look like. You can even see side-by-side comparisons of reporting under the current standards (FASB ASC 840 and IAS 17) and the new standards (FASB ASC 842 and IFRS 16).

By using hypothetical calculations, you can explore different lease options, such as lease extensions, modifications, or buyouts, and see how these changes would affect your businesses financials. This type of analysis is invaluable for strategic planning, budgeting, and forecasting, as it provides insights into potential future obligations and financial outcomes. It also allows you to identify any adjustments needed to optimize your lease portfolio and ensure compliance with accounting standards well in advance.

These tools also support scenario modeling for renegotiating rent or equipment leases by letting you adjust terms, rates or payment structures and instantly see how each option would affect your right-of-use assets, liabilities and overall lease costs. This visibility helps you evaluate the financial impact of a proposed change before entering discussions with landlords or vendors.

2. Set up pending calculations for peer review

Whether it’s to have a more experienced person check someone’s work, or just to put a second set of eyes on your journal entries, peer reviewing calculations is a smart strategy.

Visual Lease’s pending calculations feature makes it simple to streamline that process. Simply set up new lease records and calculations as “pending.” Once they have been reviewed and validated, all it takes is the click of a button to activate them.

This feature not only helps collaboration among your accounting team but also adds an extra layer of quality control. With pending calculations, team members can suggest edits, add comments, and make adjustments before finalizing the entries. Once the entries have been thoroughly reviewed and approved, all it takes is the click of a button to activate them. It minimizes the risk of reporting mistakes, saves time on corrections, and ensures that your data is accurate before it’s officially recorded.

3. Test different interest rates

Financial leaders also want the ability to test different scenarios that may occur to see how they affect the balance sheet. Here’s a great example: interest rates. While a small change in your borrowing rate may not affect smaller leases, an interest rate change may have a huge impact on a high value industrial lease.

Visual Lease’s hypothetical calculations feature, you can try out different values (without impacting your active data) and see the resulting change in the lease accounting calculations, such as the right-of-use asset and liability amounts.

4. Test different standards and classification options

When things are changing in your business, you need to plan ahead for those changes. The lease accounting guidance you get with Visual Lease’s testing features can help you prepare for what’s coming.

Here’s just one example. Let’s say your company reports under US GAAP (ASC 842) now, but plans to open a new facility outside the US next year and begin doing business in new regions. You’re going to want to see what your lease accounting looks like under the international lease accounting standards (IFRS 16).

Also, your lease classifications will change when you report under IFRS 16, so you’ll want to see how that changes your balance sheet.

You can also use this feature to help you make decisions when negotiating lease terms.

Here’s some more lease accounting guidance for you: read differences between FASB ASC 842 and IFRS 16.

5. Plan for exercising lease options

Speaking of lease decisions, whether or not you decide to exercise lease options can have a big impact on your lease accounting. That’s especially true for long-term real estate leases. The information you get from testing your options can be a big help with planning and budgeting.

For example, should you exercise an option to extend a lease for an additional 3, 5, or 10 years? For high value leases, understanding how that would affect your lease accounting obligations could impact your decisions about options.

And don’t forget, when you classify your leases, you need to specify whether or not you are “reasonably certain” to exercise options. If you’re unsure about making that call, being able to easily test different scenarios can provide helpful lease accounting guidance.

6. Preparing for Mergers & Acquisitions

When your business is involved in a merger or acquisition, understanding the financial implications of acquiring lease portfolios is important. Using hypothetical calculations in lease accounting software, you can simulate different scenarios related to mergers and acquisitions that provide insights into how these changes might impact your financials. This helps you evaluate potential shifts in liabilities, right-of-use assets, and other key metrics.

For instance, if your company is acquiring another business, you can use hypothetical testing to assess the impact of the new lease portfolio on your balance sheet. This includes evaluating the financial effects of adding leases with different terms, conditions, or discount rates.

On the other hand, if you’re divesting assets or businesses, scenario testing can help you understand how the removal of certain leases might affect your financial obligations and reporting requirements. This analysis makes sure that you are prepared to manage the financial changes from mergers and acquisitions, allowing for better planning and negotiation during the process.

7. Evaluating the Effects of New Accounting Policies

Implementing new internal accounting policies or adopting new industry standards can significantly affect financial reporting. Using hypothetical calculations, businesses can simulate these changes and evaluate their impact on key financial metrics before making any official updates. This allows companies to assess potential effects on their balance sheet, income statement, and cash flow in a controlled environment.

For example, if a company is considering a new policy for classifying lease payments or deciding to switch from straight-line accounting to a different expense recognition method, scenario testing can help identify how these changes will affect financial results. The ability to test these policies beforehand helps with smoother transitions and avoids surprises during audits or compliance reviews.

By evaluating new accounting policies through hypothetical calculations, businesses can better plan for adjustments, anticipate the financial impact, and align policy changes with organizational goals.

Testing helps you plan ahead and prevent mistakes

The bottom line is, nobody likes surprises when it comes to lease accounting. Being able to easily test different scenarios without impacting your live system is the best kind of lease accounting guidance. With Visual Lease’s lease accounting software, you’ll have access to hypothetical calculations at all times and can avoid making harmful decisions for your business.

Want to see what that looks like? Schedule a live demo of Visual Lease.

In this article, we’ll explain 3 ways of migrating your data into a new lease accounting tool like Visual Lease. But first, we’ll provide some tips for how to prepare your data so you get the most from your new system.

What to do BEFORE you migrate data into a lease accounting tool

Before you even begin to think about migrating data, take a step back and consider your goals for your new lease accounting tool. What lease data do you need to track to achieve those goals, and how do you want to manage it?

This is a critical first step that many overlook. If you jump right into moving your current data (as is) into the new system, you’ll miss opportunities to improve processes and get better results.

The main goal is being compliant with lease accounting standards. However, if you’re moving to a comprehensive lease management tool like Visual Lease, with a small investment of time upfront you can achieve much more. You can solve problems, streamline processes, save time, and save money.

To make sure you capture all the data you need, now is the time to reach out to all the groups and stakeholders in your organization that work with leases. These might include Real Estate, Facilities Management, Legal and Procurement. Ask them what lease data they frequently need, and have to refer back to the lease documents to obtain. Make sure you plan to record that information in your new lease accounting tool, even if you’re not currently tracking it now, or if you’re tracking it somewhere other than where your financial data resides.

The fact is, most organizations will need to gather additional data, even if they have lease accounting data in a legacy system. Here’s some helpful information about the data collection process:

FASB Lease Data You Can’t Get From the Lease Abstraction Process

3 ways to move data into your lease accounting tool

When people ask us about how they should migrate their data into a lease accounting tool like Visual Lease, the first thing we need to know is where the data currently resides. Generally, there are 3 options, or some combination of these 3 options:

1. Lease data is stored in an existing database.
2. Lease data is recorded in spreadsheets.
3. Lease data is still in paper or electronic lease documents.

Let’s address each of these scenarios individually. If your lease data resides in more than one format (which is common) you’ll have more than one process for getting all the data into your lease accounting tool.

Migrating lease data from existing software

If you’re going to be moving data into a lease accounting tool from an existing system, the first issue to address is data integrity. Has the data been regularly updated? Here’s a question we ask when evaluating the state of the data: If you had to use this data for an audit, would you be comfortable doing that?

Remember the old adage about “garbage in.” Before moving any data, make sure it’s valid and accurate.

Once you’re comfortable that your data is in good shape, most of the time the rest is straightforward. Visual Lease provides data migration tools that integrate seamlessly with most existing databases. We can work with you to map your data and move it directly into the Visual Lease database.

In the unusual case that our migration tools don’t integrate directly with a existing system, the other option is to export Excel reports or flat files from your existing database, then import into Visual Lease. You might also choose to do this so you can validate and clean up your data before moving it into the new lease accounting tool.

If needed, Visual Lease can take care of the mapping and the import for you. Or, if your team is comfortable with this task, they can use a Visual Lease import template (based on your new configured database) and do the import themselves. Of course, we’ll always follow up with a sanity check to make sure everything is in place.

How quickly can I import large lease schedules from brokers or landlords?

Most lease accounting platforms offer bulk upload tools that support large, complex schedules. The timing depends on the format and completeness of the data you receive. Clean, well-structured spreadsheets can often be imported within minutes. More complex schedules that require mapping, validation, or normalization may take longer. A reliable lease management platform provides data templates, automated checks, and support to help you streamline this process. These features reduce manual work and help you load high-volume schedules with confidence.

Migrating lease data from spreadsheets

If you’re keeping lease data in one or more Excel spreadsheets, you’re not alone! Plenty of very large organizations with hundreds or thousands of leases have been managing leases this way up until now. That’s because leases were not very visible and centralized lease management was not a big priority.

The good news is, getting your lease data into a lease accounting tool like Visual Lease shouldn’t be very complex. It’s a matter of mapping your data according to your newly configured database in the lease accounting tool, then importing.

However, just like migrating from a database, you must do your due diligence and validate the data if there’s any question about its accuracy.

Migrating lease data from lease documents

Even if you have lease data in other systems or spreadsheets, chances are there is some data you’ll need to obtain from your source lease documents. In that case, you’ll need to extract the relevant data points from those documents (this is called “abstraction”) and either import or enter data manually into your lease accounting tool.

If you don’t have the resources to handle a large volume of lease abstraction, Visual Lease can take care of that task for you. Here’s how it works:

• You’ll need to send digital copies of lease documents.
• We build an abstracting scope, taking into account all the data that must be captured from the lease documents.
• We abstract all the relevant lease clauses and data points, and enter into your Visual Lease database.

Data Cleansing in Migration

Data cleansing involves identifying and correcting inconsistencies, duplicates, and outdated information in your current lease data. Cleansing your data ensures that only accurate, up-to-date information is transferred, which is important for accurate reports and complying with lease accounting standards. Inaccurate data, such as duplicate records or incorrect payment schedules, can skew financial results and lead to compliance issues.

By doing a thorough review of your lease records, and making sure all relevant data points are complete and valid, you can start with clean, reliable data in the new system. Reach out to Visual Lease’s team for assistance with this process.

Testing Before Full Migration

Before executing the full migration of lease data into your new lease accounting tool, conducting a test migration is important. This allows you to assess whether the data formats, mappings, and configurations are correct, and it highlights any potential issues that could arise during the full migration. Testing with a small sample of your lease data helps identify errors such as incorrect field mapping or incomplete data and gives you the chance to correct these problems before moving all your data.

It’s also an opportunity to verify the system’s functionality and make sure that all key fields and data points are properly entered. A test migration significantly reduces the risk of errors and ensures that the final data transfer is smooth and successful.

Updating lease data in your new lease accounting tool

Once your lease accounting tool is live, remember that you will also need a process for adding new records and making changes to existing records.

For a large organization, it’s not unusual to have multiple departments entering and updating lease data. For example, Real Estate might create a new lease record. Finance might need to approve it. Accounting will enter payment records.

Here’s our advice: make sure everyone who will be entering data receives training on the new lease accounting tool and understands your data entry workflow.

A lease accounting software, like Visual Lease’s platform, not only ensures compliance with lease accounting standards, but also saves organizations time and money. If your company needs assistance implementing a new lease accounting software, contact Visual Lease. Our team offers implementation services for anyone who needs help implementing Visual Lease’s technology.

What Is a Lease Commencement Date?

A lease commencement date is the date when the tenant takes possession of the leased property. It marks the beginning of the lease term during which the tenant has the right to occupy and use the property, while the landlord is obligated to provide possession of the premises as agreed upon in the lease.

For example, if a company signs a lease in March but can’t move in until July 1st, then the lease commencement date is July 1st.

Important Lease Commencement Date Terms

Lease Term or Lease Period

The lease term or lease period is the total length of time the tenant has the right to occupy the leased property. It starts on the lease commencement date and ends on the lease expiration date.

Rent Commencement Date

The rent commencement date is when rent payments begin under the lease. It is typically the same as the lease commencement date, but there may be situations where the rent commencement date differs from the lease commencement date. For example, they could be different in commercial leases where rent starts after a build-out or rent-free period.

Occupancy Date

It refers to the date when the tenant physically occupies the leased property. It is often the same as the lease commencement date, but it can sometimes be earlier or later, depending on the terms of the lease agreement.

Move-in Date

The date when a lessee or tenant <>physically moves into a space. It may differ from the occupancy date, which is when they are legally allowed to begin using the property—such as when a tenant starts paying rent but delays moving in.

Lease Effective Date

The lease effective date is when the lease agreement becomes legally binding, while the lease commencement date is when the lessee takes possession of the property. They may or may not be the same date.

Lease Execution Date

The lease execution date is when all parties sign the lease agreement. It establishes the legal commitment and usually precedes the lease effective date and lease commencement date.

Lease Inception Date

The lease inception date is when the parties agree to the lease terms and the agreement is formally created. It comes before the lease execution date, which is when all signatures are added to the agreement.

Commencement Certificate

The commencement certificate is a document issued by the landlord or an authorized representative confirming the lease commencement date and the tenant’s possession of the premises.

Rent Abatement

Rent abatement is a provision in the lease agreement that allows for a temporary reduction or suspension of rent payments during specific circumstances, such as when the premises are undergoing renovations or repairs before the tenant moves in.

Holdover Period

A holdover period occurs when a tenant continues to occupy the leased premises after the lease term has expired without signing a new lease or terminating the tenancy. The terms regarding the holdover period are usually outlined in the original lease agreement.

Key Lease Dates Timeline

Thhis chart outlines the differences between dates involved with a lease agreement, in the order they would typically take place. Some of these dates may or may not be the same, such as lease effective date and lease commencement date.

How Do You Determine A Lease Commencement Date?

For attorneys, the lease commencement date is a date defined within the leasing contract. It could be the date on which the contract was signed, or some other predetermined effective date specified in the agreement. This date holds legal significance and serves as a reference point for various contractual obligations and rights.

In contrast, accountants perceive the lease commencement date as the point at which the lessee gains possession and control of the leased asset. This date could be when the lessee moves into the property or when they receive access to initiate specific construction work. Essentially, it is the actual start date of the lease from an accounting standpoint.

Importance of Lease Commencement Date for Accounting

Understanding the lease commencement date is crucial for accurate lease accounting. It determines when the lessee should begin recording the leased asset and the associated liability. It also marks the starting point for expensing the lease. In the case of an operating lease, the expense is typically recognized on a straight-line basis. Conversely, for a finance lease, the amortization of the asset is straight-lined. Regardless, both the asset recording and expense recognition commence from the accounting commencement date, rather than the date of the first rent payment or the effective date specified in the contract.

Lease Commencement Date for Accountants vs. Attorneys

Although the lease commencement date may seem straightforward, its interpretation differs between attorneys and accountants. Attorneys focus on the contractual definition, while accountants emphasize the actual possession and control of the leased asset. Understanding this discrepancy is vital for accurate lease accounting, as it determines when to record the asset, liability, and associated expenses. By clarifying the distinction between the lease start date, move-in date, and the lease accounting effective date, both lessors and lessees can ensure compliance with accounting standards and avoid any potential misunderstandings in lease agreements.

What Happens if the Lease Commencement Date Is Not Determined Accurately?

Failing to accurately determine the lease commencement date can have several implications and consequences for both the landlord and the tenant. Here are 6 potential issues that may arise:

1. Ambiguity and disputes: Without a clear lease commencement date, there is room for ambiguity and confusion about when the tenant’s occupancy rights and rent obligations begin. This can lead to disputes between the parties, as each may have a different understanding of when the lease officially starts.
2. Rent calculation discrepancies: The lease commencement date is crucial for calculating rent amounts accurately. If the date is not properly determined, it can result in disagreements about the rental amount and the duration for which it applies. This can lead to financial disputes and potential financial losses for both parties.
3. Legal compliance issues: The lease commencement date often has legal implications tied to it, such as notice periods for termination or other legal obligations. Failing to determine the date accurately can result in non-compliance with these legal requirements, which may have legal consequences or negatively impact the rights and responsibilities of both parties.
4. Delayed occupancy or premature termination: Inaccurately determining the lease commencement date can cause delays in the tenant’s occupancy, particularly if the date is later than expected. Conversely, if the date is earlier, it may result in premature termination of the previous tenant’s lease or inadequate time for necessary preparations. These situations can disrupt the tenant’s plans and lead to financial losses or legal complications.
5. Inadequate time for preparations: The lease commencement date is an essential reference point for various activities such as property inspections, repairs, renovations, and obtaining necessary permits. If the date is not accurately determined, it can lead to insufficient time for these preparations, affecting the condition of the property or the tenant’s ability to move in smoothly.
6. Misalignment with other agreements: In some cases, the lease commencement date may need to align with other agreements or contracts, such as utility connections, insurance coverage, or leasehold improvements. Failing to accurately determine the date can result in a mismatch between these agreements, leading to logistical complications or contractual breaches.

Understand the Lease Commencement Date to Prevent Misunderstandings in Lease Agreements

Understanding the lease commencement date is crucial in lease agreements to prevent misunderstandings and ensure clarity between the parties involved. Here are 6 ways it helps:

1. Clear start of occupancy: The lease commencement date specifies the exact date when the tenant can legally occupy the leased property. This clarity prevents any confusion or disputes about when the tenant can take possession of the premises.
2. Rent calculation: Lease agreements typically outline the rent payment terms, which often include a monthly or annual basis. The lease commencement date allows both parties to determine the accurate start date for calculating the rental amount, avoiding disagreements over when the rent obligation begins.
3. Term of the lease: The lease commencement date establishes the duration of the lease agreement. It defines the start and end points of the lease term, ensuring that both parties are aware of the specific time period covered by the agreement. This prevents misunderstandings about the lease’s duration and avoids premature termination or extensions.
4. Maintenance and repairs: The lease commencement date serves as a reference point for maintenance and repairs. It establishes when the tenant becomes responsible for the upkeep of the property, and any pre-existing damages or repairs needed before the tenant’s occupancy can be determined. This clarity minimizes disputes over maintenance responsibilities and the condition of the property at the start of the lease.
5. Legal obligations: Certain legal obligations, such as providing notice to terminate the lease, may be tied to the lease commencement date. Understanding this date ensures that both parties comply with their respective legal obligations and prevents misunderstandings or violations of the lease agreement.
6. Timeline for negotiations: The lease commencement date provides a timeline for negotiations and preparations between the landlord and tenant. It allows both parties to plan and coordinate activities related to move-in logistics, such as inspections, renovations, or obtaining permits. Clarity regarding the lease commencement date facilitates effective communication and minimizes misunderstandings during the preparation phase.

Overall, understanding the lease commencement date in lease agreements promotes transparency, reduces disputes, and provides a common reference point for both parties involved. It ensures that the terms, obligations, and responsibilities within the lease agreement are clearly defined, preventing misunderstandings that can lead to conflicts or legal issues.

Lease Commencement Date FAQ’s

What is the difference between the lease commencement date and the effective date?

The lease commencement date is when the tenant can begin using the leased property. The effective date is when the lease becomes legally binding, typically when both parties sign the agreement.

In some leases, these dates are the same; in others, the effective date comes first. For example, if a lease agreement is signed in advance but the tenant’s occupancy doesn’t begin until a later date, the effective date remains the date of signing while the lease commencement date is the actual start of tenancy.

What is the difference between the lease commencement date and the inception date?

The lease commencement date marks the start of the lease term and tenant occupancy. The lease inception date is essentially the starting point of the contractual relationship between the landlord and the tenant, when the lease agreement itself is formed.

Is the lease commencement date the same as the rent commencement date (the date of the first rent payment)?

The lease commencement date, rent commencement date, and lease effective date can all be the same day, but they often differ depending on lease terms. The lease agreement should specify each date clearly. There are situations where the rent commencement date can be later than lease commencement, especially in commercial leases.

Can the lease commencement date vary depending on the circumstances?

Yes, from an accounting perspective the lease commencement date can depend on when the tenant gains access—such as the move-in date, the day keys are delivered, or the start of construction use. Whichever event occurs first will be considered the lease commencement date for accounting purposes. It’s essential to document this date accurately for compliance and to minimize disputes and legal complications, promoting a smooth and mutually beneficial leasing experience for all parties involved.

Getting All Your Lease Dates Right

Understanding lease commencement dates is a crucial aspect of lease accounting and it’s essential to have the right tools in place. Visual Lease’s lease accounting software simplifies the process by automating the tracking of key lease dates, calculating right-of-use assets, and ensuring compliance with the latest accounting standards. Take control of your lease management process today with Visual Lease.

The stakes are high when it comes to choosing a lease accounting platform, because it directly affects the accuracy of your company’s financial reporting. Just about every firm working to implement the new lease accounting standards (FASB ASC 842 and IFRS 16) will be working with a new technology vendor to accomplish this project. How can you be sure you can trust what that vendor says about their own internal controls and practices, and how they will be handing your company’s financial information?

That’s exactly what Visual Lease’s SOC 1 Type 2 certification provides: proof (for both you and your independent auditors) that our internal controls are appropriately designed and properly executed to ensure safe and accurate processing of our clients’ financial transactions.

What is a SOC1 report?

A SOC 1 report is a comprehensive assessment conducted by an independent auditor to evaluate the internal controls of a service organization that could impact the financial statements of its clients. This report focuses on the organization’s ability to maintain accurate and secure financial reporting processes and provides assurance to clients about the effectiveness of these controls.

What’s required for a SOC1?

The requirements for a SOC 1 audit vary depending on the type of report being issued. However, there are some general requirements that all SOC 1 audits must meet, including:

• The service organization must have a written description of its internal controls over financial reporting.
• The service organization must have a process for monitoring the effectiveness of its internal controls.
• The service organization must permit the auditor to have access to all relevant documentation and personnel.
• The service organization must cooperate with the auditor’s investigation.
• The auditor must test the operating effectiveness of the service organization’s internal controls over financial reporting.
• The auditor must obtain written representations from management about the effectiveness of the service organization’s internal controls over financial reporting.

What does a SOC 1 Type 2 certification tell you?

Your lease accounting software vendor is a service organization that acts as an extension of your own company in the sense that they perform processing of your financial data, adding lease accounting journal entries to your GL and calculating lease assets and liabilities. That’s why your technology vendor’s controls and practices need to stand up to the same level of scrutiny that your own do.

Service Organization Control (SOC) assessments and reports, created by AICPA (American Institute of Certified Public Accountants) and performed and generated by an accredited audit firm, provide the assurance that a service organizations controls are properly designed to meet their stated control objectives at a specific point in time.

A SOC 1 report specifically addresses a service organization’s controls that relate to internal control of financial reporting. The Type 2 certification adds an assessment of the service organization’s execution of their own controls (whereas a Type 1 audit assesses only the design of controls). Auditors can come in at any point during or after the report’s specified time period to test and verify the service organization’s compliance with controls.

Because a SOC 1 Type 2 report covers a specific time period, it’s important to look for continuity of coverage over time. Chances are you will rely on your lease accounting technology for many years to come, so your auditors need to be satisfied that your chosen vendor continues to follow their stated controls and practices for the long term.

Visual Lease’s SOC 1 Type 2 certification services as assurance that your data is secure in our system and your lease accounting calculations are accurate.

Controls examined in Visual Lease’s SOC 1 Type 2 audit

Every SOC 1 audit is not the same; service organizations can have differences in their stated objectives and controls.

Visual Lease’s SOC 1 Type 2 audit covered data security, acceptable use of data, physical security of our offices, backup and recovery, and continuity planning. Our audit also went above and beyond policies and business practices to validate the most critical aspect of our service: our lease accounting calculations engine.

The following are the specific controls and business practices that auditors assessed and certified in Visual Lease’s SOC 1 Type 2 report.

• Organization administration: These controls provide reasonable assurance that individuals employed are qualified, experienced, and trained for the job functions they perform.
• Client onboarding and administration: These controls provide reasonable assurance that client and related lease data will be supported, authorized, accurate, and reliable.
• Lease calculations: These controls provide reasonable assurance that lease data will be processed completely and accurately.
• Governance and compliance: These controls provide reasonable assurance that risk identification and management, as well as relevant laws and regulations that impact operations, are identified, known, understood and implemented into business operations.
• Physical security: These controls provide reasonable assurance that physical access to the system is restricted to authorized personnel.
• Environmental controls: These controls provide reasonable assurance that the system is protected against fire and smoke and that temperature and humidity is maintained within predefined ranges.
• Logical access: These controls provide reasonable assurance that logical access to systems is restricted to authorized personnel and is based on job responsibilities.
• Vulnerability management: These controls provide reasonable assurance that the Visual Lease infrastructure is adequately secured from vulnerabilities.
• Backup and recovery: These controls provide reasonable assurance that appropriate backups of critical systems are made to enable recovery from an outage or data center failure.
• Change management: These controls provide reasonable assurance that changes are tested, approved, and documented prior to implementation.
• Website availability: These controls provide reasonable assurance that service levels are defined between Visual Lease and its clients and that application availability and the hosting environment are monitored.
• Third party providers: These controls provide reasonable assurance that third-party service providers are monitored.

How has SOC 1 Reporting Evolved Over Time?

Before, the absence of standardized reporting allowed companies to share information as they pleased, favoring insiders but leaving consumers and shareholders in the dark about internal controls and investor safeguards.

The American Institute of Certified Public Accountants (AICPA) stepped in to standardize this process, introducing auditing standards for compliance. In 2011, these standards evolved into SSAE 16, later renamed SOC 1, effective from June 15, 2011.

SOC 1 aimed to align US reporting with international practices, introducing two key changes:

1. Requiring a comprehensive “system description” in place of the prior control description.
2. Mandating a management-crafted assertion outlining control standards and responsibilities.

This new framework focused on reporting the service organization’s financial control internals, including risks from internal personnel and processes in the system description.

How are SOC 1 Type II and SOC 2 Type II reports maintained and shared?

Visual Lease maintains its SOC 1 Type II and SOC 2 Type II reports on an annual basis to ensure ongoing verification of our internal controls and data protection practices. Each report is produced following an independent audit conducted by a third-party firm and reflects our continued commitment to security, accuracy, and compliance. These reports are available to clients and their auditors upon request under a standard non-disclosure agreement, providing transparency into how we safeguard financial data and uphold industry standards.

Selecting a lease accounting platform is more than a technology decision, it’s a trust decision. Visual Lease’s SOC 1 Type II certification, combined with our robust internal controls and annual audits, provides the confidence that your organization’s financial data is handled with the highest levels of integrity and security. With Visual Lease, you can be assured that your reporting processes remain accurate, compliant, and fully supported by independently verified controls.

The Fusion of Technology and Data Standards

The collaboration between Visual Lease and OSCRE International exemplifies a synergistic approach to marrying technology with the rigorous development of data standards, significantly enhancing ESG reporting capabilities. Ian Cameron from OSCRE International emphasized the critical contribution of technology-focused companies like Visual Lease:

“It makes a real difference to us to have a clear idea of what kinds of data requirements fit, let’s say, energy data management… You are very much aware of that, and you’re sharing that, and again, that’s extraordinarily valuable because frankly, the proof is in the pudding at the detail level in these standards.”

This insight illuminates the importance of granular, technical knowledge in crafting standards that align with industry needs and bolster the integrity and functionality of ESG data.

The Pillars of Effective ESG Reporting: Integration and Implementation

A standout theme from our discussion is the imperative of data integration and strategic implementation beyond mere management. Bill Harter of Visual Lease discussed how working with OSCRE has enriched the evolution of Visual Lease’s solutions, particularly the VL ESG Steward platform. This tool represents a pivotal step forward, leveraging the collaboration with OSCRE to ensure comprehensive analytics and actionable ESG insights.

Leveraging Lease Data with VL ESG Steward

The VL ESG Steward platform integrates lease data directly into ESG reporting, transforming raw lease information into actionable insights. Through the collaboration with OSCRE, lease attributes such as energy usage, occupancy, property type, and lease terms are standardized and seamlessly fed into the platform.

This integration allows organizations to not only track compliance with ESG reporting standards but also analyze environmental impact, identify efficiency opportunities, and make data-driven decisions for sustainable property management. By connecting lease data to comprehensive analytics, the platform empowers companies to turn real estate portfolios into strategic levers for ESG performance.

Broadening ESG Reporting Horizons

The dialogue with OSCRE opens new avenues for expanding into scope three operations and beyond. This initiative is poised to offer more precise estimations for ESG reporting, aiding companies in the complex landscape of scope three emissions and broader ESG concerns.

A Comprehensive Approach to ESG Standards

The collaborative effort to develop ESG reporting standards is comprehensive. Ian Cameron’s work on process flows represents an all-encompassing strategy to ensure tools like VL ESG Steward meet users’ sophisticated needs, enabling organizations to exceed ESG reporting standards.

The partnership between Visual Lease and OSCRE is not just a collaborative effort; it’s a pioneering endeavor to redefine the future of ESG reporting. We’re establishing a foundation for a new era of sustainability and transparency in real estate and beyond through targeted technology, detailed data standards, and a focus on practical application.

Reflecting on the depth of the collaboration, Ian Cameron remarked, “You focus on the detail and the technical aspects of some of the stuff that probably passes by most people’s eyes… And that’s extraordinarily valuable because frankly, the proof is in the pudding at the detail level in these standards.” This encapsulates the essence of our mission – to empower organizations with the tools they need to demystify ESG reporting complexities and contribute to a sustainable future. This conversation highlights the transformative power of integrating robust data standards with cutting-edge technology.

With the right approach, businesses can overcome these challenges and transform their real estate portfolio into a strategic asset.

What is Corporate Real Estate Benchmarking?

Corporate Real Estate benchmarking can be defined as comparing one’s business processes and performance metrics to the best practices and metrics from other companies. The processes and methodologies of benchmarking can be a valuable tool in the management of corporate real estate.

Why is Corporate Real Estate Benchmarking Important?

Corporate real estate benchmarking is important because it provides companies with a systematic way to measure and compare the performance, costs, and efficiency of their real estate assets against industry standards or competitors. Here’s why it’s particularly valuable:

1. Cost Control and Optimization: Benchmarking reveals where real estate expenses may be higher than the industry average, identifying areas for cost reduction or improved efficiency.
2. Improved Decision-Making: When making decisions about expansions, lease renewals, relocations, or consolidations, having benchmarks helps companies make more informed choices.
3. Resource Allocation and Efficiency: Real estate benchmarking helps businesses assess how efficiently they use space and resources. It allows companies to see if they’re using their facilities effectively and make adjustments when needed.
4. Risk Management: With benchmarks in place, companies can identify performance gaps that signal potential risks.
5. Strategic Planning and Growth: For companies planning to grow or enter new markets, benchmarking offers insights into market standards.
6. Sustainability Goals: As more companies focus on sustainability, benchmarking can be used to measure environmental performance, such as energy consumption or waste reduction, against other organizations.

Corporate real estate benchmarking methodology

Robert Camp wrote a book with an amazing 12-stage methodology on corporate real estate benchmarking. This methodology applies to a comprehensive benchmarking effort. A more abbreviated process can be used. Camp’s process was as follows:

1. Select subject
2. Define the process
3. Identify potential partners
4. Identify data sources
5. Collect data and select partners
6. Determine the gap
7. Establish process differences
8. Target future performance
9. Communicate
10. Adjust goal
11. Implement
12. Review and re-calibrate

Usually benchmarking is used to identify a specific problem in the company’s real estate portfolio such as space utilization, unit costs, leased rates, comparison of real estate values to prevailing market values, or cycle times such as average project cycles.

To take advantage of benchmarking, it’s essential that you have a robust lease administration system that can provide the space and cost data to be used in the benchmarking process.

Benchmarking for corporate headquarters

Benchmarking for corporate headquarters involves comparing the costs, utilization, and operational efficiency of a company’s headquarters with industry standards or peer organizations. By examining elements like space utilization, operating expenses, and energy efficiency, companies can determine if their headquarters are performing optimally or if there is room for improvement.

This type of benchmarking helps organizations identify potential cost-saving opportunities, optimize space, and ensure the corporate headquarters meets both operational needs and sustainability targets. Understanding how similar companies manage their headquarters can provide insights into best practices for layout design, employee count, and occupancy costs.

Optimizing facilities and costs

Another use of corporate real estate benchmarking can be used to measure the metrics of internal facilities and costs. Here management is concerned with those facilities that represent unusual variances either in utilization or costs, as a way to target remedial action.

Optimizing facilities and associated costs through benchmarking allows companies to simplify real estate expenses while improving the efficiency of their properties. Benchmarking metrics such as maintenance costs per square foot, and facility utilization rates can reveal areas where expenses are higher than industry norms. This helps identify inefficiencies in operational processes or facility management practices.

Companies can then target specific strategies for cost reduction, such as negotiating lease terms or revising maintenance schedules. Good benchmarking in facilities management supports cost control, ensuring that each property within the portfolio operates efficiently without sacrificing quality.

Commercial real estate performance metrics to target

Corporate real estate benchmarking should be a fundamental tool in the CRE manager’s tool kit. I would urge CRE managers to include a series of benchmarks in the annual real estate plan.

Such benchmarks as average space per person, average facilities cost per person, and average cost per square foot as compared to market rates can provide management with a keen insight to the portfolio’s performance relative to best in class metrics.

Corporate real estate benchmarking can be a way to establish annual performance goals. Using benchmarks can set the stage for strategic actions to meet these goals such as facilities relocations, consolidations, and/or lease renewals/ renegotiations.

Why Corporate Real Estate Benchmarking Can Be Challenging

Corporate real estate benchmarking offers insights, but the process can be challenging. One common issue is data availability — finding comprehensive and consistent data across different locations can be difficult, especially for international companies.

Another challenge lies in data consistency and comparability. Even when data is available, companies may face discrepancies in how metrics are defined and calculated. Without standardized definitions, it’s difficult to make comparisons.

Regional and market variations also complicate the benchmarking process. The real estate market is highly localized, and what works as an ideal benchmark in one area may be unrealistic in another due to variations in demand, occupancy rates, and economic conditions. These differences require companies to approach benchmarking with flexibility and allow for adjustments while maintaining corporate standards.

How Lease Accounting Software Can Benefit the Benchmarking Process

Real estate lease accounting software is a valuable tool in the benchmarking process. By consolidating lease data into a single platform, the software allows companies to access accurate and up-to-date data across all real estate assets. This eliminates manual data entry and spreadsheet tracking, which can lead to inconsistencies and inaccuracies.

Advanced lease accounting software provides reporting and analytics tools that allow users to generate customized reports aligned with specific benchmarking metrics. The ability to narrow down metrics by region, asset type, or department also helps companies better understand performance gaps and areas for improvement.

Many lease accounting platforms offer forecasting and scenario analysis, allowing companies to model potential outcomes based on future lease decisions. This is useful for long-term benchmarking and it helps companies project the impact of potential changes in occupancy, rent escalations, and other variables. These platforms also enable companies to compare lease terms across global service‑center locations, providing insights that support optimized renegotiations and more strategic lease management. Learn more about these capabilities.

What benchmarking can a platform provide to compare occupancy cost versus industry peers?

A strong lease accounting and real estate management platform should enable companies to benchmark occupancy costs against industry peers. Visual Lease provides built-in analytics and reporting that aggregate and normalize occupancy data across properties, allowing users to compare their space utilization and cost per square foot to market and industry standards. This insight helps real estate and finance teams quickly identify where costs are above average and take action to optimize lease terms, space allocation, or operational efficiency.

By understanding and applying benchmarking data, businesses can find areas for cost savings, improve resource allocation, and make data-driven decisions that align with their goals and growth strategy.

Although benchmarking presents challenges, especially in terms of data consistency and regional variability, a strong lease accounting platform can streamline data management, enhance accuracy, and provide the analytics needed for meaningful comparisons.

As companies increasingly prioritize sustainability, efficiency, and financial performance, benchmarking will remain a powerful strategy for maintaining a competitive edge in real estate portfolio management. Contact our team today with any questions or schedule a demo.

ATLANTA–(BUSINESS WIRE)–Visual Lease (“VL”), a CoStar Group (NASDAQ: CSGP) brand and the premier platform for integrated lease management, accounting and reporting, in collaboration with CoStar Real Estate Manager, today released a new report from the Visual Lease Data Institute (“VLDI”), “2026 Outlook: The Trends, Risks and Opportunities Shaping Lease Portfolio Management.” In this third-annual, national survey, senior finance and real estate executives at enterprise organizations shared insights into their lease management strategies, financial and real estate priorities, technological innovations and more amidst a fluctuating economic and regulatory landscape.

“Lease portfolios are no longer just a line item on the balance sheet — they are a source of valuable and actionable insights,” said Mark McDonald, President of Visual Lease and CoStar Real Estate Manager. “Our survey found that finance and real estate executives are increasingly utilizing portfolio data to guide strategic planning. With more companies returning to the office, sustainability goals still top of mind and market conditions shifting, leaders agree that clear visibility and cross-team collaboration are more critical than ever for managing risk and making informed decisions.”

Key findings from the report include:

• Executives are elevating strategic decision-making with lease portfolio data: Real estate executives are utilizing this data to enhance financial forecasting and budgeting (57%) and optimize lease renewals and negotiations (51%), while finance executives are using it to improve forecasting (49%), drive cost savings (47%) and inform decisions around adopting new technologies (46%).
• Visibility and control are crucial for lease compliance and reporting: Without proper visibility and control over lease portfolios, companies struggle with compliance and accurate reporting. The share of real estate executives who are “very” or “extremely” confident in understanding the total costs, risks, and opportunities in their lease portfolio grew from 52% in 2024 to 71% in 2025.
• Companies plan to add leases, but cautiously: While more real estate leaders are looking to lease additional space in 2026 (70% said adding space is part of their upcoming strategy, compared to 56% in 2024), flexible terms remain a priority amidst market uncertainty. Even further, 64% say their company is extremely or very likely to delay making needed upgrades or moving facilities in the coming year due to the state of the economy.
• Sustainability reporting is still a priority: Even with national sustainability reporting requirements rolled back, leaders continue to invest in environmental-related reporting as stakeholder appetite remains strong. In fact, 80% of real estate leaders and 88% of Finance Leaders are prioritizing sustainability reporting more this year than in 2024.
• Finance executives have high hopes for AI: 70% of finance executives believe the value of generative AI lies in providing resources and information in record time, helping their teams move more quickly. Specifically, they hope that AI will help reduce reporting errors (69%), streamline manual tasks (45%) and analyze key data sets (41%) – all of which are dependent on correct and comprehensive data.
• Collaboration between real estate and finance saves money: Finance and real estate leaders see the benefits of collaboration, especially when it comes to lease portfolio management, which touches multiple functions across finance, real estate, legal and IT. From 2024 to 2025, the share of real estate executives saying their finance team is completely collaborative rose from 4% to 26%. Interestingly, a much larger percentage of finance executives (81%) believe they are completely collaborative with their real estate colleagues.

“Companies that get their lease data in order today will be best positioned to navigate risks and seize new opportunities going into 2026 and beyond,” said McDonald. “While we never have a crystal ball into what the future will hold, proper lease management and valuable data insights can make the vision clearer and planning more informed.”

To download the report and view the full data findings, click here.

Visual Lease conducted national surveys of 200 U.S. senior Finance and Accounting Executives and 200 U.S. senior Real Estate Executives at private, public and government organizations with more than 1,000 employees.

What Does It Mean to Capitalize an Asset?

To capitalize an asset means to recognize it on your balance sheet as both an asset and a corresponding liability. In the context of lease accounting, this occurs when a lease, whether an operating or finance lease, is brought onto the balance sheet. The asset value represents the right to use the leased asset over the lease term, while the liability reflects the future payment obligations associated with the lease.

Capitalized Assets Based on the Lease Classification

Regardless of lease type, all leased assets are capitalized under ASC 842 guidelines. However, the treatment of these capitalized assets varies based on the lease classification.

1. Operating Leases: In an operating lease, the expense recognition is characterized by straight-line rent expense. This means that the total lease payments are divided equally over the lease term. The amortization of the right-of-use asset is calculated based on an interest component derived from the remaining liability balance.
2. Finance Leases: Finance leases, on the other hand, are recognized with a front-loaded expense recognition. The amortization of the right-of-use asset follows a straight-line method, while the interest component varies as the liability balance decreases over time.

Depreciation of Capitalized Lease Assets

Once a lease-related asset is capitalized, it must be depreciated over its useful life. For capitalized lease assets, such as leasehold improvements or equipment, the depreciation period is often the shorter of the asset’s useful life or the lease term.

Common depreciation methods include straight-line depreciation, which spreads the expense evenly over the asset’s life, or an accelerated method, which front-loads the depreciation cost. Depreciation expenses are recorded on the income statement, reducing the value of the asset on the balance sheet over time.

Common Mistakes to Avoid in Asset Capitalization for Leases

Misclassifying lease-related costs is a common mistake businesses make when deciding whether to capitalize or expense these costs. One common error is capitalizing costs that should be expensed immediately, such as routine maintenance or minor repairs, which can lead to inflated asset values on the balance sheet.

Another mistake is failing to properly allocate costs between tenant improvements and general operating expenses, leading to incorrect depreciation schedules.
Businesses also sometimes overlook the need to capitalize costs associated with lease modifications, such as expanding a leased space or extending the lease term. To avoid these errors, it’s essential to maintain accurate records, review lease agreements closely, and ensure compliance with lease accounting standards.

Calculating Asset Capitalization

As the intricacies of calculating asset capitalization and amortization become evident, it’s clear that the assistance of specialized software is invaluable. Solutions like Visual Lease’s lease management software offer the functionality to streamline these calculations, ensuring accuracy and compliance. With pre-set formulas and automation capabilities, lease management software simplifies the process, allowing you to focus on strategic decision-making rather than complex calculations.

Which KPIs Does the Platform Surface to Support Strategic Capital Allocation Decisions?

To help organizations use their lease portfolio as a financial lever, the platform highlights key performance indicators (KPIs) such as:

• Lease Liabilities: Shows the total financial obligations tied to leases, helping teams assess cash flow needs and funding requirements.
• Right-of-Use (ROU) Asset Value: Reflects the worth of capitalized assets, allowing finance teams to evaluate asset utilization and balance sheet health.
• Weighted Average Lease Term (WALT): Provides visibility into the length of commitments, enabling better forecasting and capital planning.
• Incremental Borrowing Rate (IBR) Impact: Highlights how discount rate assumptions affect capitalization and debt profile, supporting cost-of-capital analysis.
• Depreciation and Amortization Trends: Tracks expense recognition over time, giving insight into when resources will be freed for redeployment.
• Compliance Status Across Standards (ASC 842, IFRS 16, GASB 87): Surfaces adherence metrics that reduce risk and protect access to capital markets.

A Clearer Path to Lease Accounting Clarity

While the terminology of lease accounting may have evolved, the concept of asset capitalization remains at its core. Recognizing leased assets on the balance sheet, along with the corresponding liabilities, is a critical step in achieving accurate financial reporting and compliance. Whether dealing with operating or finance leases, understanding the nuances of asset capitalization ensures that your organization remains on the path of accurate and transparent lease accounting practices. And with the support of advanced lease management software, you can navigate these complexities with confidence and clarity.

There’s been a significant shift in today’s digital landscape. While companies used to opt for point solutions to address specific needs, many are now looking to broader systems to help foster collaboration, enhance data visibility, and ultimately drive stronger decision-making.

What Is Accretion in Lease Accounting?

Accretion refers to the addition of value over time, and in financial terms, it often relates to interest. When you take out a loan, for instance, the lender charges interest, which accrues on the outstanding balance. If payments are made on time, the interest adds to the liability while the payments reduce it, explaining why a $300,000 house might ultimately cost $1,000,000 over time due to accrued interest.

In lease accounting, accretion works similarly. It primarily comes into play in situations where no lease payments are made for an initial period, but interest continues to accumulate. For example, if a lease has a three-month grace period without payments, interest will still accrue during that time, increasing the overall liability. Once regular payments commence, the accrued interest is balanced by cash payments, reducing the principal liability over time.

Accretion vs. amortization

When discussing financial reporting, accretion and amortization are often mentioned side by side, but they serve very different purposes. Understanding the distinction is critical, especially in lease accounting and when dealing with long-term liabilities like asset retirement obligations (AROs). Amortization is a method used to gradually reduce the value of intangible assets over their useful life. Think of it like depreciation, but for non-physical assets lik patents, trademarks, software, or leased right-of-use (ROU) assets.

In lease accounting, amortization often applies to the ROU asset created at lease inception. Each period, a portion of that asset’s value is expensed, reducing both the asset on the balance sheet and net income on the income statement. The journal entry is straightforward: debit amortization expense, credit the asset account.

Although both amortization and accretion reduce net income through expenses, their effects on the balance sheet differ:

• Amortization lowers the asset value.
• Accretion increases the liability.

Understanding the difference between these two accounting treatments is especially important for companies managing leased assets and associated obligations. Accretion plays a critical role in ensuring that future liabilities are accurately reflected over time, while amortization ensures intangible assets are expensed in a rational, consistent way.

Accretion in Asset Retirement Obligations (ARO)

While accretion is a factor in regular lease accounting, it is especially important when dealing with Asset Retirement Obligations (ARO). An ARO refers to the lessee’s obligation to restore the leased asset to its original condition at the end of the lease. This could include removing any improvements or specialized equipment added during the lease term.

Globally, different countries have varying requirements for restoring leased properties. In the U.K., for example, a “dilapidation and restoration clause” requires tenants to return leased premises to their original condition. In the U.S., while the rules might not be as strict, companies still need to recognize the expense related to restoring leased assets as part of the cost of occupying a property.

How ARO Works in Accounting

The core principle of accounting requires companies to recognize expenses over the life of a lease, not just at the end. However, predicting the exact cost of an ARO can be difficult. Companies estimate the cost based on current prices and inflation factors. For instance, a company may estimate that restoring an asset at the end of the lease in 2030 will cost $75,000. The present value of that future expense is then calculated using a risk-free discount rate (e.g., 2.75%).

In this scenario, the company would book an ARO liability today at the present value of $62,000, reflecting the discounted future payment. The $62,000 is recorded as both a liability (Asset Retirement Obligation) and an offsetting asset (Asset Retirement Expense).

Over the life of the lease, the company would amortize the expense on a straight-line basis and accrete interest on the liability. At the end of the lease term, the liability would have grown to $75,000 due to accrued interest, which would be satisfied with a final payment of $75,000.

The Impact of Accretion on Financial Statements

Accretion expenses affects both the balance sheet and the income statement. On the balance sheet, the ARO liability increases over time as interest accrues. This reflects the growing value of the future obligation. Meanwhile, on the income statement, the company recognizes a portion of the expense every period, representing the amortization of the initial expense and the interest accretion.

This method of accounting ensures that the financial statements accurately reflect the cost of occupying the leased premises over time, even if the actual payment occurs in the future.

The Role of EBITDA in Accretion

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a common metric used to assess a company’s profitability before accounting for non-operating expenses like interest or depreciation. Accretion impacts EBITDA differently than other expenses because interest accretion is considered a non-operating expense. In ARO accounting, accretion is recognized as an interest expense, while the amortized asset retirement expense is recognized as an operating expense.

This distinction is important because it affects how a company’s profitability is measured. Accretion reduces net income but doesn’t immediately impact EBITDA, which focuses on cash flow from operations before non-operating costs like interest.

Using Lease Management Software for ARO Accounting

Managing asset retirement obligations can be complex. Companies need to account for inflation, calculate the net present value of future expenses, and make appropriate journal entries to recognize accretion and amortization. This process requires precision, and tools like Visual Lease simplify the complexity of ARO accounting by automating these calculations and ensuring compliance with accounting standards.

Visual Lease, for instance, helps organizations manage their lease portfolio, accurately calculate accretion expenses, and streamline the entire process of booking asset retirement obligations. By handling the intricate details of lease accounting, these platforms allow companies to focus on core operations rather than manual calculations.

Accretion in lease accounting, particularly regarding asset retirement obligations, is an essential concept that ensures financial statements reflect the true cost of leases over time. Understanding how accretion works, both in regular lease payments and AROs, is crucial for accurate financial reporting and compliance with accounting standards. With the help of lease management software, companies can simplify the process and ensure they remain on top of their lease obligations, avoiding costly errors or non-compliance.

For businesses dealing with complex lease structures, staying organized and using tools like Visual Lease can make the difference between streamlined operations and costly financial errors.

What is Asset Retirement?

Asset retirement refers to the process of removing, disposing of, or decommissioning an asset that is no longer in use or has reached the end of its useful life. In many industries, asset retirement obligations (AROs) are recognized as a liability. These obligations represent the estimated future costs of retiring certain assets, especially in cases where environmental or safety considerations are involved.

When Is an End of Term Obligation an Asset Retirement Obligation?

The guidance of ASC 842, Leases, and ASC 410, Asset Retirement Obligations, can be somewhat circular and hard to follow.  Each standard refers to the other, and both discuss contract versus regulatory requirements, as well as a host of other considerations.  While these factors may impact the ultimate determination, ASC 842 gives us a simple rule of thumb:

• If the obligation is to remove an improvement to the underlying asset, and the asset has been recognized on the lessee’s balance sheet, the obligation to remove that asset should generally be accounted for as an ARO.
• If the asset is owned by the Lessor, then the cost to remove the asset would be considered a lease payment. It increases the lease liability and the right of use of assets. Amortization of this asset increase will then increase the lease expense.  
  • Note that this “ownership” issue is based on accounting ownership, not legal ownership, which may be different.

There is a third subset of end of lease obligations which arise out of environmental considerations.  These are covered by a different section of ASC 410. 

Examples of Asset Retirement Obligation (ARO)

1. Biglaw, LLC, leases 40,000 square feet in a class A office building. The landlord agrees to build out offices and conference rooms to Biglaw’s specification, at a cost not to exceed $1 million. Biglaw approves the plans but is not involved in the construction.  They are obligated to return the space to its original condition at the end of the lease term.  Biglaw does not place a Tenant Improvement on their balance sheet.This end of lease obligation is not considered an ARO. Biglaw will estimate the cost to remove the improvements at the end of the lease and consider that a final lease payment. The lease liability and right of use asset include the cost to remove.
2. Justeatz, Inc. leases 4,000 square feet to use as one of their chain restaurants.  The space requires significant work to accommodate all their restaurant equipment, both general kitchen equipment and their signature finishes and signage. At the end of the term, Justeatz will remove their equipment and branded materials. Justeatz pays the contractor and puts a Leasehold Improvement on their balance sheet, then the landlord reimburses them. While the asset and liability are reduced by the amount of the incentive, the estimated cost to remove the leasehold improvements is handled as an ARO.

Differences ARO in Other Standards

IFRS 16 does not contain this sort of differentiation. Any obligation to dismantle and remove an underlying asset, the site or the underlying asset is accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets and is treated as an adjustment to the Right of Use Asset.

GASB 87 does not specifically address ARO for lessees. A clarifying statement in GASB 83, Certain Asset Retirement Obligations, goes further to require that lessors must recognize ARO’s associate with the leased property, but “a lessee’s liability as a result of obtaining the right to use an underlying asset generally would be incorporated into lessee’s lease payments”.

What is the Accounting Entry for Asset Retirement?

During ARO accounting, business must recognize the fair value of the ARO upon incurring the liability if it can obtain a realistic estimate of the ARO’s fair value. But if the fair value is initially unobtainable, then the ARO must be recognized at a later date when the fair market value is already available. 

Note that this does not apply if there is just uncertainty as to the amount of the obligation, only when the entity has insufficient information to estimate the present value. All three accounting standards contain similar provisions.

How Are Asset Retirement Obligations (AROs) Treated Under Different Accounting Standards?

ASC 410 (FASB, US GAAP)

Under ASC 410, the initial measurement starts with a recognition of the expected future costs to retire the asset. ASC 410 notes that using the expected cash flow technique is usually the only appropriate method for measuring the liability. This method calls for the entity to estimate the costs to meet the obligations today. If there are several possible scenarios or costs to estimate, the entity should establish a weighted average cost based on the probability of each being the correct value. This weighted average cost should then have an expected inflation factor applied to estimate the cost to be incurred at the time of remediation. 

Note that the time of remediation is not necessarily the end of the lease term. The expected date of remediation may occur before or after the lease expiration date.

This expected expenditure is then discounted using a risk-free interest rate, adjusted for the entity’s credit risk. This discounted value is the Asset Retirement Obligation, which is recorded as a liability on the balance sheet. Interest (at the discount rate) accretes to the obligation each period.

When recording the ARO, the offsetting debit entry is the Asset Retirement Cost. This cost is expensed “using a systematic and rational method over the useful life of the asset.” This is commonly amortized on a straight-line basis, although other methods may be used.

IFRS 16 (IASB)

IFRS 16 and IAS 37 work together to account for asset retirement obligations in leases.  IAS 37 starts with a best estimate of the expenditure to settle the obligation. The future obligation is discounted just as in ASC 410, except that the discount rate is a pre-tax rate that reflects current market assessments and the risks specific to the liability. The resulting value is called the Provision. Interest accretion is recognized as a borrowing cost.

The provision is then entered as an increase to the Right of Use Asset in the lease accounting schedule, with an offsetting credit against the IAS 37 provision. The Provision is therefore expensed in equal monthly installments as the ROU asset is amortized.

GASB 87 

Recall that GASB 87 does not specifically address ARO for lessees. GASB 83, Certain Asset Retirement Obligations, states that “a lessee’s liability as a result of obtaining the right to use an underlying asset generally would be incorporated into lessee’s lease payments”. Therefore, the cost of satisfying the asset retirement obligation is merely considered a final payment during the lease term.

How Are ARO Changes Accounted For?

As ARO’s are always a forward projection of likely expenses, they are subject to change.  Inflation factors can change, technology can change the cost of accomplishing the work, and regulatory influences can change the scope, just to name a few factors.  Each of the standards provides for re-measuring the ARO as these conditions change.  

The factors to consider and thresholds for change are too many to consider here.  However, each standard calls for a periodic review, which may be supplemented when conditions are known to change. Changes which are material would be handled as remeasurements, as in ordinary lease accounting.

Our Lease Accounting software can ensure you that you are properly accounting for your ARO. Don’t believe it, request a demo to see for yourself. We provide our users with a time-saving, compliant ARO accounting solution.

This integration will provide mutual customers with a comprehensive view of their lease portfolios, helping to enhance operational efficiency and control while mitigating risk

Arlington, Virginia – April 17, 2025 – Visual Lease, a CoStar Group (NASDAQ: CSGP) brand and a premier platform for integrated lease management, accounting, and reporting, announced today that it has become a Workday Innovation Partner. This collaboration combines Visual Lease’s platform for lease accounting and management with Workday Financial Management software to empower joint customers with a comprehensive view of their lease portfolios, helping them manage their financial ecosystem, from general ledger to lease-specific reporting, accurately and efficiently.

With this partnership, mutual customers can use a packaged solution including a standard set of preconfigured integrations that help automate the bidirectional exchange of financial data, provide more streamlined lease management, and help support compliance with FASB/IFRS and GASB 87/96 standards. The partnership comes on the heels of CoStar Group’s recent acquisition of Visual Lease and is a testament to their commitment to broaden the solutions available to their customers.

“Our integration delivers real-time, accurate data across systems, empowering customers to enhance compliance, boost operational efficiencies, and minimize financial reporting risks, all while reducing costs,” said Andy Florance, CoStar Group Founder and Chief Executive Officer. “This partnership with Workday further aligns the Visual Lease platform to provide accurate and timely information, which empowers our customers to continue confidently making strategic decisions and drive their business forward.”

Shared customers will benefit from a comprehensive financial tool with Workday Financial Management, and a best-in-class solution for lease accounting and management with Visual Lease.

About CoStar Group, Inc.

CoStar Group (NASDAQ: CSGP) is the global leader in commercial real estate information, analytics, and online marketplaces. Founded in 1986, CoStar Group is dedicated to digitizing the world’s real estate, empowering all people to discover properties, insights, and connections that improve their businesses and lives.

CoStar Group’s major brands include CoStar, a leading global provider of commercial real estate data, analytics, and news; LoopNet, the most trafficked commercial real estate marketplace; Apartments.com, the leading platform for apartment rentals; and Homes.com, the fastest-growing residential real estate marketplace. CoStar Group’s industry-leading brands include STR, a global leader in hospitality data and benchmarking, Ten-X, an online platform for commercial real estate auctions and negotiated bids and OnTheMarket, a leading residential property portal in the United Kingdom.

CoStar Group’s websites attracted over 134 million average monthly unique visitors in the fourth quarter of 2024, serving clients around the world. Headquartered in Arlington, Virginia, CoStar Group is committed to transforming the real estate industry through innovative technology and comprehensive market intelligence. From time to time, we plan to utilize our corporate website as a channel of distribution for material company information. For more information, visit CoStarGroup.com.

About Visual Lease

Powered by CoStar Group, Visual Lease is the premier platform for integrated lease management, lease accounting, and sustainability reporting. It is trusted by enterprises worldwide to seamlessly navigate complex portfolios. As the centralized system of record for all lease-related financial, operational, and legal data, Visual Lease supports every team involved in managing a company’s leased and owned assets. Informed by nearly three decades of experience, our platform enables organizations to save time, mitigate risks, reduce costs, and support sustainability initiatives. Our award-winning software is used by 1,500+ organizations to manage more than 1 million leased assets records globally. For more information, visit visuallease.com.

Media Contacts

Matthew Blocher
CoStar Group
mblocher@costargroup.com
T: 202-346-6774

Angie Lufrano
Caliber Corporate Advisors
visuallease@calibercorporate.com
T:510.517.2842

What is Lease Amortization​

Lease amortization refers to the process of gradually reducing the value of a lease over its term. It involves spreading out the lease’s total cost (such as the present value of lease payments) over the duration of the lease, similar to how loan amortization works.

For accounting purposes, this is typically used for leases that fall under the guidelines of operating leases or finance leases under the current accounting standards, like IFRS 16 or ASC 842. The purpose of lease amortization is to allocate the lease expense over the lease term.

Key components involved in lease amortization:

• Lease Liability: The amount that the lessee owes to the lessor over the lease term. This amount is the present value of lease payments.
• Right-of-Use (ROU) Asset: The value of the asset the lessee has the right to use under the lease, which is also amortized over the lease term.

Understanding a Lease Amortization Schedule

A lease amortization tables is designed to outline the timing of lease payments and allocate them between principal and interest components. It is a schedule reflecting the gradual reduction of the lease liability balance over time. This split of the payments into principal and interest is required for the undiscounted cash payments to reduce the discounted liability to zero at the end of the lease term.

How To Create a Lease Amortization Schedule

To begin, let’s explore how to construct a lease amortization schedule:

1. Gather Information: Collect essential lease details, including the number of payments, payment amounts, lease term, and discount rate.
2. Choose Payment Timing: Determine whether your discounting calculations will be based on payments made at the beginning or end of each period. This choice will influence your calculation methodology. The actual timing of the payments is not relevant to this decision. Although many companies choose beginning of period methodology to align with real estate rent due the first of the month, others choose end of period to be consistent with calculations created in Excel.
3. Calculate Beginning Liability Balance: Calculate the net present value of all remaining future payments. This value serves as your beginning liability balance.
4. Set Up Amortization Schedule: Create a table with columns for Period, Beginning Balance, Interest Expense, Principal Payment, Cash Payment, and Ending Balance.
5. Fill in Period Numbers: Start with period 1 and proceed to the lease term’s final period.
6. Calculate Interest Expense: Based on your chosen payment timing, calculate the interest expense for each period. For beginning-of-period payments, subtract the full current period payment from the previous period’s ending balance, then apply the interest rate. For end-of-period payments, apply the interest rate to the previous period’s ending balance.
7. Calculate Principal Payment: Subtract the interest expense from the cash payment to determine the principal payment.
8. Calculate Ending Balance: Deduct the principal payment from the beginning balance to get the ending balance for the current period.
9. Repeat the Process: Continue these calculations for each period until the lease term is complete.
10. Visualize the Data: Create a line chart to visualize the gradual reduction of the lease liability balance over time.

Benefits of Using a Lease Amortization Schedule

Creating a lease amortization schedule offers several benefits for businesses and individuals alike:

• Financial Planning: The schedule provides a clear overview of payment distribution, helping you plan your finances effectively.
• Accurate Reporting: An accurate schedule aids in preparing financial statements and adhering to accounting standards such as ASC 842 and IFRS 16.
• Compliance: For businesses, compliance with lease accounting standards is essential. A well-constructed schedule ensures you stay compliant with regulations.
• Informed Decisions: By understanding how payments are allocated between interest and principal, you can make informed decisions about leasing arrangements.

What about the Assets?

Assets are also amortized in a Lease Amortization Schedule, but with some important differences. The initial value of the asset is first adjusted by things like lease incentives, initial direct costs, prepaid rent, and more. The amortization of that asset depends upon the lease classification.  Operating leases are amortized based on straight line rent and interest, while finance leases amortize the asset on a straight line basis.

Ordinary modifications further complicate the asset valuation, while impairments and abandonments completely change the amortization schedule. This level of complication is another driving factor behind companies leveraging dedicated lease accounting software to remain in compliance.

How to Get a Lease Amortization Schedule or Template

For those looking to simplify the process, various online lease amortization schedule calculators are available. These tools allow you to input lease details and receive a ready-made schedule.

In conclusion, understanding how to calculate a lease amortization schedule is a valuable skill that enhances financial management and decision-making. By leveraging tools, you can create accurate schedules that provide insights into lease payment timing and distribution. Whether you’re a business professional or an individual managing personal leases, this knowledge empowers you to take control of your financial obligations.

Remember, consistency in methodology is key, regardless of whether you choose beginning-of-period or end-of-period calculations. By mastering lease amortization schedules, you’ll be well-equipped to navigate the complexities of lease accounting and financial management.

Looking for a tool to manage your lease accounting needs? Easily manage every modification and maintain compliance as your leases – and the regulatory requirements – evolve with VL’s Lease Accounting platform.

We are pleased to announce that Kathryn Eskandarian, Visual Lease’s Chief Financial Officer, has been named the winner of a Silver Stevie® Award in the Female Executive of the Year category in the 21st annual Stevie® Awards for Women in Business.

About the Award

The Stevie Awards for Women in Business honor women executives, entrepreneurs, employees and the companies they run – worldwide. The Stevie Awards have been hailed as the world’s premier business awards. More than 1,500 entries from organizations and individuals in 36 nations and territories were submitted this year for consideration in more than 100 categories.

Gold, Silver, and Bronze Stevie Award winners were determined by the average scores of more than 200 business professionals around the world, working on seven juries.

About Kathryn Eskandarian

As Chief Financial Officer at Visual Lease (VL), Kathryn Eskandarian leads the company’s financial operations, along with overseeing key administrative functions including IT, Legal, and Human Resources. Since joining VL, Kathryn has been instrumental in crafting and implementing financial strategies that have fueled the company’s growth and profitability.

Kathryn’s belief that business health relies on informed, data-driven decisions drew her to VL. She recognized the platform’s unique value as a centralized system of record for leases and owned assets – a significant expense area for most organizations. Anticipating VL’s rapid growth, Kathryn developed a robust, scalable financial infrastructure to support the company’s ambitious goals and expanding customer base.

Seven years later, Kathryn remains dedicated to furthering VL’s mission, helping companies gain value from their lease portfolios and making informed decisions that drive business success – all aspects that have led to this prestigious recognition as a top female executive in her field.

VL remains committed to fostering a diverse and inclusive workplace and is proud to share that its executive leadership team is comprised of 60% women.

Looking Ahead

We invite you to connect with ​​Kathryn on LinkedIn and join us in cheering her on.

First, they give you pricing for the bare bones model. Then, you find out that what they showed you involves a lot of add-ons to the platform. None of it is standard and every extra thing – from fields that you need, to reports – is going to cost you.

That’s a common frustration to come across when evaluating software vendors. Systems that lack configurability are expensive, time-consuming to implement, and cumbersome to update when you need a small change.

Wouldn’t you rather get everything you need right out of the box? When it comes to choosing lease accounting and management software, you can, if you know what to look for. In this article, we’ve laid out the desired configurable enterprise lease software solution you need.

What you see should be what you get

Software customers shouldn’t have to jump through hoops to get a system to work how they need. A good lease accounting system should make your life easier – and be configurable to meet your needs.

When looking at different lease software providers, they all claim to be customizable. However, when you dig deeper, you’ll find out their system contains only surface-level customizations at best.

At Visual Lease, our solution is designed to be flexible and scalable for all customers. Every customer coming to us from any industry can have a system that meets their unique needs without paying extra to get it.

If you want a truly flexible system that works how you need it to, and will serve your business for many years to come, here are the specific features to look for:

1. Look for a truly configurable database

Every organization has different lease information that they need to track. Manufacturing companies with leased warehouses will need to track the number and height of bay doors. Retail franchise groups need to track the brand associated with each retail location. They may also have leased vehicles that need to be associated with a location and a manager. Hospital groups may want to track the originating parent company for each facility.

These are just a few examples, but I’m sure your organization has similar necessities that are not part of the typical lease data tracked by “canned” lease software. When you think through everything you’re currently tracking (or would like to track all in one place), you’re going to need more than just a few uniquely tailored fields specifically to your business.

What you need is a software product that has been designed from the database level to be completely configurable. With that capability, there’s no need to give up what you are looking to track and try to force your business into a one-size-fits-all model.

With Visual Lease, you not only get a flexible system, but you get one that is entirely configurable for no additional cost. Our implementation team helps you through the initial setup, but also teaches you how to tweak the system yourself when the inevitable changes happen in your business, so you can always have the data you need at your fingertips.

2. The importance of ad-hoc reporting

With any lease software, you’ll get what looks like an impressive collection of standard reports. But as you begin to use them, you’ll realize you need to make changes. You’ll want the reports to reflect your own terminology, your organizational structure, and your leasing policies and practices – not to mention the look and feel of your brand.

The last thing you want is to have to go back to the vendor (or a consultant) and spend a lot of money on report customizations. Oftentimes, software companies will provide you custom reports – for a cost. Why would you want to pay for exporting your own data in a way that makes sense to your business?

Instead, look for lease software with an ad-hoc reporting tool that makes it quick and easy to create your own data visualizations and reports.

With Visual Lease, you can query ANY lease information that you’re tracking in the system and group, subgroup, and filter the data any way you choose. Even better, you can do it with a tool you already know: Excel. You can save reports, add to a dashboard, or export and format with templates to create a branded look.

3. Flexible user access & security

For comprehensive lease software that manages the entire lifecycle of your leases (including administration and accounting), you’ll likely need to provide different levels of access and control for people with different responsibilities.Some examples of user roles and access include:

• Multiple levels of administrative access, rather than a single administrator
• A separation of roles and associated access rights within the various parts of the lease system
• The ability to create groups based on roles with pre-assigned permissions
• The ability to control certain rights at an individual level

You’ll also want to control login credentials and create passwords that match your corporate password policy. You might want the extra security of using multi-factor authentication, or you might want to tie into your organization’s existing Single Sign On (SSO) to authenticate users.

4. Adaptable implementation services

When you work with a vendor to implement software, how does the process begin? In most cases, you’ll hear about cloned steps they take with every customer.

When you’re getting a more customizable product, the process will start with a conversation about your goals and how you want to use the system.

For example, the implementation team should ask about the systems you’re using now. Obviously that conversation will include your AP/GL, but should go beyond that to discuss other systems that you need to integrate with, or tools that you’re replacing. What’s working well that you would like to replicate in your new comprehensive lease management system?

The team should work with you to create what we like to call your “blue sky vision” of your ideal solution.

Accounting strings are a great example of an essential customization that your implementation team should set up for you. Every large organization has a unique coding system for invoices that allow the financial team to identify who owns that invoice, who is responsible for paying it, and where it belongs in the budget. That code should follow every lease-related expense and journal entry.

Your implementation team can work with you to concatenate information from various lease data fields (often including custom fields) to create custom accounting strings that match your coding system.

5. An all-inclusive price

Let’s be realistic: even the easiest to use lease software requires implementation services to help you get your data into the system. You’ll need training for administrators. And you’ll need ongoing support when questions come up.

Many (if not most) solution providers nickel and dime you for every service they provide on top of the product itself.

Here at Visual Lease, we feel that “software as a service” means you should get the services you need included with the platform. That means implementation services, training, and help desk support are all included in the price you pay for our product.

People are always surprised when they ask about extra charges and we say, no, this is all included as part of the system.

Want to see for yourself? You can be confident that what you see will be what you get, all at a reasonable and predictable price. Schedule a demo now!

There’s been increasing interest in what is known as beacon technology. Usually associated with retail marketing, beacon technology first emerged in 2013. Today the technology is driving a huge growth in sales with an expected increase in sales from $519 million in 2016, to $56 billion in 2026.

Apple invented the standard for beacon technology in 2013. Essentially the technology depends on users downloading the app on their smart phone which allows them to receive messages from Beacon enabled locations. In essence, the technology employs Bluetooth low energy (BLE) wireless technology that sends a signal that can be received on a user iPhone that is near the beacon transmitter. The user must opt in to the specific Beacon application. The beacon sends out a signal every second or more to a short distance which can range from a few feet to several hundred yards.

While Apple invented the technology, it does not provide the hardware. There are several leading vendors of the beacon transmitters including Kontakt, Bluesense, Gelo, Estimote, and Google’s version, Eddystone.

How Different Industries are Using Beacon Technology

So why should CRE managers have an interest in beacon technology? Essentially beacon technology is an extension of the smart building format that focuses on building automation and the Internet of Things (IOT). With beacon technology, managers can keep track of space utilization by tracking workstation use, vacancies, etc. Beacon technology can also track such things as energy use, by tracking temperature fluctuations, floor space use, employee traffic patterns, etc. CRE managers can use the technology to push messages to visitors such as meeting location, daily event schedules, and other information helpful to visitors.

In the event of emergencies, beacon technology can alert employees of incident status, exit routes, and alert rescue personnel of employee locations, and status.

Beyond office and retail use, beacon technology is being widely employed in the sports industry. Major League Baseball has deployed beacon technology in nearly all of the 30 major league parks as of 2024. Baseball fans can get information on concession deals, seat upgrades, and game schedules. And museums have discovered the benefits of beacon technology by delivering exhibit information, floor plans, and information on specific exhibits that replaces the audio headsets. Museums gather information on attendee interest with specific exhibits that help with future planning.

Enhancing Tenant Experience

Beacon technology allows property managers to deliver personalized updates and notifications directly to tenants’ smartphones. This can include reminders for lease renewals, maintenance schedules, or upcoming building events. Tenants can also receive location-based messages, such as details about nearby amenities or promotions for services available within the building.

For large office complexes, beacons can guide tenants and visitors through the property with turn-by-turn directions. This is especially helpful for first-time visitors or individuals with accessibility needs.

With beacon-powered apps, tenants can easily request services such as cleaning, IT support, or conference room bookings. This improves tenant satisfaction and simplifies communication between property managers and tenants.

Streamlining Property Management Operations

Beacon technology integrates with building management systems to monitor equipment and systems in real time. Property managers can receive alerts when a system requires maintenance, preventing breakdowns and minimizing downtime.

Beacons track occupancy rates across various building spaces and allow property managers to identify underutilized areas. This data can be used to optimize space usage or reallocate resources.

By monitoring foot traffic, energy usage, and building patterns, beacon data helps identify inefficiencies. Property managers can use this data to reduce energy consumption, adjust cleaning schedules, and optimize staffing, leading to significant cost savings.

Security & Emergency Management

Beacons can integrate with access control systems to monitor and restrict movement within the building. This ensures that only authorized personnel have access to specific areas.

During emergencies, beacons provide guidance to employees and visitors, showing the nearest safe exits or alerting them to blocked pathways. Rescue teams can also use beacon data to locate individuals quickly.

With beacon-enabled visitor authentication, guests can receive temporary digital passes on their smartphones, eliminating the need for physical badges. This not only enhances security but also improves the visitor check-in process.

Concerns about beacon technology

Beacon technology raises the issue of personal privacy. Critics note that the technology can be abused by tracking individual’s buying behavior and location within stores and offices. The fact that users can opt out of a beacon technology solves the privacy issue, but is not a long-term solution.

Beacon technology: another trend to watch

Beacon technology is yet another example of how technology is transforming the personal experience from the workplace, to retail, sports, education, hospitality, entertainment, and an almost limitless variety of activities at the intersection of people and places. We’ve stressed the need for CRE managers and professionals to stay abreast of real estate technology trends since it is surely technology that will define the CRE mission of the near future.

Similarly, advanced tools like real estate lease accounting software are revolutionizing how businesses manage their lease portfolios. These platforms provide CRE managers with critical insights into lease data, operational costs, and compliance requirements, enabling smarter decision-making. By combining innovations like beacon technology with good lease accounting solutions, CRE professionals can optimize their lease management strategies, reduce costs, and maximize ROI while staying ahead in a competitive real estate market.

In this article, we will address how you can benefit from third-party lease accounting implementation services, the range of services available, and the value you can expect to gain from working with experts who have already helped numerous companies through this process.

Why work with an outsourced lease accounting implementation services provider?

Expertise & Experience

Outsourcing lease accounting software implementation provides businesses with access to specialized expertise and experience that in-house teams may not have. Implementation trams know the complexities of lease accounting standards like ASC 842 and IFRS 16, ensuring that your software is set up correctly and meets all compliance requirements.

Visual Lease’s team has managed multiple implementation projects across different industries and has the expertise a company may need when implementing a new lease accounting software. By working with a third-party team, you benefit from their knowledge, simplify the process, and ensure a smooth and compliant implementation.

Avoiding false starts

Part of the reason companies underestimate the timeline is because they do not know what they do not know. There is a learning curve involved in this process and a great many decisions to be made. Companies jumping into the process without the guidance of an expert often make mistakes that waste time and money. With lease accounting implementation services, you gain the advantage of experience and avoid those mistakes.

“Often companies need to pivot from work already performed after months of effort,” said Steven Sayewitz, a Manager at Riveron, focusing on lease accounting system selection and implementation. “By getting into the details and discussing policy decisions and approach, areas of consideration come to light which may not have been initially considered.”

“Companies can limit re-work by engaging with experts early on to help them through the initial questions and planning.”

Sharing the load

A great deal of time-consuming work is needed to get prepared for implementing a new lease accounting software. Collecting lease data and preparing the data for your lease accounting system is probably the biggest task. However, there are additional tasks that may prove surprisingly difficult for those who are not experts, such as choosing the right lease accounting software, and developing new processes and procedures for gathering, updating and reporting on lease data.

Consultants providing lease accounting implementation services can take some or all of those tasks off your plate, freeing up your staff to focus on other tasks and initiatives.

Improved Data Accuracy & Compliance

Data accuracy is critical when implementing lease accounting software, and errors can lead to financial reporting mistakes and non-compliance with accounting standards. Third-party implementation service providers use validation processes to ensure that the data being migrated is accurate and complete. They’re prepared to handle data discrepancies and correct these issues before they cause problems.

Faster Implementation & Reduced Delays

As was just discussed, In-house teams often will have to balance day-to-day responsibilities and the implementation at the same time. An implementation team is solely focused on delivering a successful implementation and can dedicate the necessary resources to keep the project on track. Their experience allows them to anticipate challenges and resolve them quickly, avoiding common mistakes that would cause delays.

Preparing for day 2 (Post-implementation)

The right lease accounting implementation services partner can facilitate development of policies and procedures that not only get you ready to help you maintain compliance for years to come.

What implementation steps can you outsource?

Lease accounting implementation services can include any or all of the following steps:

Initial assessment: reviewing your complete lease portfolio and identifying everything that qualifies as a lease.

Controls and policies development: developing processes and approvals to ensure valid data, and advising on policy decisions that minimize time while mitigating risk, such as decisions about when to take practical expedients.

Project management: overseeing your lease accounting implementation process and keeping all involved parties on track.

Software selection: knowing the strengths and limitations of software providers and identifying the ideal solution for your specific needs.

Gathering data: collecting lease information from decentralized sources throughout your organization.

Lease abstraction: extracting the relevant clauses from your contracts.

Data preparation and transfer: aggregating and normalizing lease data from many sources, centralizing and moving into your lease accounting database.

Testing and validation: robust accounting testing and checks and balances to make sure your reporting results accurately represent your lease portfolio.

Process development for Day 2: developing a plan for maintaining compliance, including policies and processes for ongoing collection and updating of lease records.

Cost and value of lease accounting implementation services

Given the looming deadline, escalating the timeline is enough of a reason to consider lease accounting implementation services. But, companies also want to understand the value they are getting for the expense.

Sayewitz emphasized that when you choose an experienced advisor, lease accounting implementation services can easily pay for themselves by giving time back to your internal staff.

“If internal resources are tasked with figuring out what the guidance requires, systems to adopt, and creating new processes for day 2, inevitably some productivity loss around day-to-day responsibilities will occur,” said Sayewitz.

And, there is additional ROI that comes from using lease accounting implementation services that most organizations overlook. It creates the basis for accurate financial reporting, and helps develop streamlined processes, enabling those responsible for accounting of leases to focus more on the financial impact and opportunities for lease spend cost savings.

Visual Lease’s Implementation Services

Outsourcing your lease accounting software implementation to an implementation service provider offers many advantages. By working with professionals who have managed hundreds implementations across industries, you can avoid common mistakes, stay compliant, and position your company for long-term success. If your company is looking for assistance with lease accounting implementation services, contact Visual Lease. Our team can help with a fast, efficient, and compliant migration to our platform.

Want to learn more?  Schedule a demo today to get started.

This article dives into the key elements of these reports, their value to CRE , managers, and how to leverage them to make better decisions.

What CRE can learn from a real estate market analysis report

Virtually all real estate service firms offer some type of real estate market analysis. These reports are typically offered at no cost and some are quite good. Some larger firms such as CBRE, Jones Lang La Salle (JLL), and Cushman and Wakefield, offer global reports with focus on all the major market cities. Typically reports covering market analysis of real estate are issued quarterly with annual forecasts and summaries.

The reports are based primarily on brokerage activity, and most are quite detailed and accurate.

What real estate market analysis reports cover

Generally the reports cover the following categories:

• Gross and net rental rates (in $ per square foot) by property type, including office, industrial, retail, apartments, land valuation.
• Key statistics include absorption rates, vacancies, implicit interest rates, and major transactions including major leases, subleases and sales.
• Markets are organized by major metropolitan areas (both suburban, and central business district). Markets are further divided by property quality: A, B, C. Many of the reports cover international markets including Canada, UK, Continental Europe, Asia, Australia, and Middle East.
• Most reports provide forecasts of rental rate trends, interest rate trends, and outlook on availabilities, and shortages.
• Key statistics include vacancy rates, absorption (rate at which space is absorbed), space growth or reduction, interest rates, and major transactions.
• The reports usually provide commentary on market conditions, and key factors influencing market dynamics such as employment trends, new construction, regulatory changes, and changes in key factors such as zoning changes, etc.

The value of a focused real estate market analysis report

CRE managers can order special market reports that focus on specific markets and sub-markets. Ordinarily, real estate service firms will provide market analysis as part of a brokerage assignment. Sometimes it’s wise to have more than one report to validate projections and trends.

The Power of Analyzing Historical Trends in CRE Market Analysis

Analyzing historical trends is essential for providing context to current market conditions and predicting future shifts. By reviewing data on vacancy rates, rental growth, and absorption rates over several years, CRE managers can identify patterns that inform their leasing and investment strategies.

For instance, historical data may reveal seasonal trends in leasing activity, helping companies time their lease negotiations for the best terms.

Historical analysis is also important for understanding how external factors, like economic downturns or pandemics, impact commercial real estate. During the COVID-19 pandemic, for example, companies that examined historical responses to previous crises were in a better position to pivot their portfolios toward emerging trends like flexible workspaces and suburban real estate.

Leveraging historical trends allows CRE managers to make data-driven decisions rather than reactive ones, which protects their portfolios against market volatility.

Real estate market analysis: the latest trends

In reviewing the latest reports, here are some key findings:

• The Tech industry is the key driver in office markets nationwide, particularly in West Coast markets.
• The trend of growth in urban markets is beginning to subside with a resurgence in suburban markets.
• Growth in shared offices continues to trend upward, with growth in most urban and suburban markets.
• In general, the real estate markets worldwide are in good shape with no contraction anticipated over the next three years. Some analysts raise concerns with a downturn possible after three years, but there is no consensus on this possibility.

Role of Lease Accounting Software in Market Analysis

Real estate lease accounting software can be a game-changer in tracking and responding to market trends. Tools like Visual Lease centralize lease data and allow CRE managers to easily analyze financial obligations, lease terms, and performance metrics across their entire portfolio. This integration of lease data with market insights enhances strategic decision-making.

For example, lease accounting software can automate the calculation of occupancy costs, which helps CRE managers compare their current portfolio to market benchmarks. Features like customizable dashboards, automated alerts for lease renewals, and ad-hoc reporting helps decision-making and allows quick responses to market changes.

Advanced analytics tools within the software can also identify opportunities to optimize expenses, like renegotiating leases in oversaturated markets or leveraging favorable market conditions to expand. By incorporating lease accounting software into their strategy, CRE managers can ensure their decisions are data-driven and aligned with the current market.

CRE managers need to stay abreast of real estate market trends and adjust leasing and portfolio strategy as appropriate. We recommend taking a five year view of the markets, and update your company’s real estate strategy based on a five year rolling forecast. This means becoming knowledgeable about the insights provided by real estate market analysis reports, and following the trends on a quarterly basis.

By staying updated on trends and leveraging insights from reports, CRE managers can optimize leasing strategies, reduce risks, and seize opportunities in a competitive market. Integrating tools like lease accounting software ensures accurate tracking and simple management of lease data, enhancing the ability to respond to market shifts with confidence. Trust a superior lease accounting software like Visual Lease to aid in your market analysis process.
Want to see how it works? Request a demo now.

Commercial real estate services firms typically provide day-to-day management of property leases for their clients. This service is a relatively small source of revenue. However, it serves as a foot in the door to get the more profitable business: the big transactions when companies acquire new space.

That’s why many commercial real estate brokers offer lease administration services. As part of that service, they include a software solution that can be used by both the client and the service provider. It helps the service firm more efficiently manage leases, and it gives the client easy access to their lease information when they need it.

Enhanced Data Transparency

With lease accounting software, real estate brokers can provide their clients with full transparency. Real estate lease accounting software allows clients to easily access detailed lease data, track changes in real-time, and generate custom reports. Brokers that offer this level of visibility build trust and demonstrate their commitment to client success.

Compliance & Reducing Risk

Lease accounting software helps real estate brokers ensure their clients remain compliant with accounting standards like ASC 842 and IFRS 16. Compliance is crucial for avoiding audit issues and penalties. By integrating this software, brokers show clients that they prioritize accuracy, making them invaluable partners.

Faster Decision-Making

Integrated lease software not only simplifies day-to-day management but also accelerates decision-making processes. Brokers using end-to-end solutions can help clients respond quickly to lease changes, opportunities, or shifts. This responsiveness can be a game-changer in a fast-paced real estate market.

The dilemma for companies: one system or two?

The need for lease accounting software solutions creates a dilemma for large organizations that currently maintain lease data in a broker-owned lease administration tool.

Should they purchase one of the standalone lease accounting software solutions, and keep lease administration information in the existing system?

Or, should they move to one complete, integrated lease solution that does both?

The two-system approach: a logistical nightmare

A single-system approach is by far the better option. For one thing, the lower-end lease administration tools that real estate service firms typically offer don’t integrate well with other systems.

Lease payments and other data need to be regularly fed to general ledger systems. Since low-end lease admin tools can’t send data feeds, companies would be forced to use manual export/import processes.

Not only is that incredibly time consuming, but it’s expensive to set up. For the real estate firm, integration with lease accounting software solutions could cost more than they’re currently paying for their administration tool.

For the client, relying on manual data moves is risky: it’s prone to error. When it comes to accounting data for multi-million dollar real estate leases, it’s a risk many CFOs (and their audit firms) won’t even consider.

And there’s even more manual work involved in keeping lease data up to date in lease accounting software solutions. Property leases can and often do change during the course of the lease: payments change, options are executed, and space is added or removed. That means more manual movement of data, and more risk of mistakes, when you’re stuck with two systems.

Few large organizations are going to accept a difficult ongoing data management process like this. That’s why end-to-end lease administration and lease accounting software solutions are catching on.

The issues with moving to a single system

When a large company decides to move to a combined solution, they face another problem with their real estate firm.

Finance executives may not want an outsourced real estate firm to have administrative access to their accounting data. That decision may be made based on lease accounting guidance from audit partners. And they certainly don’t want their real estate firm to OWN their lease accounting software solution.

For real estate services firms, the handwriting is on the wall: clients need to centralize all their lease data, and many will choose to take it back into their own hands. That could easily mean the real estate broker loses their foot in the door that ensures they get the bigger business associated with property leases.

How Real Estate Brokers Can Keep Their Clients with Lease Accounting Software

Smart real estate service providers won’t just take this situation lying down and wait to lose customers.

The good news is, if you’re proactive you can get out in front of the problem and actually improve your relationship with your clients.

Our advice? Take these steps now:

1. Learn about end-to-end lease administration and lease accounting software solutions.

You may be able to improve your position by offering technology that better meets your clients leasing needs instead of one that’s only half a solution.

2. Get a seat at the table and help clients make smart decisions.

The fact is, if your clients choose the right lease accounting software solutions, you can still keep their lease administration business.

Visual Lease, for example, has the security infrastructure in place to allow an outsourced firm to work with a client’s lease administration data, while controlling access to sensitive accounting data.

Don’t wait for your clients to come to you with this problem.

Get involved and earn their trust by recommending smart lease accounting software solutions. If you do, you can stay in the game and keep your valued clients. If you’re a real estate broker looking for a premium real estate accounting software that can integrate with existing systems, check out Visual Lease. Our team is happy to answer any questions and get you started today.

Want to see how it works? Request a demo now.

What is the value of lease accounting software?

The immediate, necessary value of enterprise lease accounting software is having the ability to perform accurate calculations on your lease data and generate precise financial reports.

Long-term Value

The value extends beyond just financial accuracy. When you choose the best lease accounting software, you’ll gain a tool that supports broader business objectives, including improving operational efficiency, reducing risks, and facilitating better financial decision-making.
3 Benefits of a Valuable Lease Accounting Software:

1. Improving efficiency and productivity
2. Mitigate costly errors and eliminate risks
3. Overall cost savings and better financial decisions

How does lease accounting software improve efficiency and productivity?

1. Eliminating Manual Processes

The best lease accounting software uses smart, intuitive system design to eliminate manual processes, therefore making it easy to accomplish tasks quickly.

2. Improving Employee Productivity

Improving employee productivity is a KPI for just about every organization, regardless of size or industry. If your lease accounting tool is cumbersome and complicated to use, it will slow people down and hinder their work.

3. Time-Saving Features

To test the time-saving value of a lease accounting software, consider the following:

• Does the system allow you to enter data once and use it throughout the system (rather than entering the same thing in multiple places)?
• Does the system support mass updates to different groups of assets, such as based on entity, country, brand, or asset class?
• Does the system support configurable alerts based on asset profile, or based on user groups?
• Does the system accept updates to master data in the administrative settings (such as GL codes), rather than having to pay for a vendor CR each time?

These areas are just some of the key areas that impact how quickly and easily you can accomplish what you need to within your lease accounting software.

How does lease accounting software mitigate costly errors and risks?

The costly risks that lease accounting software should help reduce are two-fold. First, inaccurate financial reports can cause you to fail an audit, which in itself is a huge risk. Second, there’s a very high financial risk associated with a poorly managed lease portfolio.

A couple of examples of how you can improve your lease portfolio management are:

• Lease options. For real estate leases, renewal options are critical. If you miss the chance to renew at favorable terms, you could be on the hook for millions… for a period of several years. When important lease dates approach, the best enterprise lease accounting software will alert those who need to take action.
• Validating payments. When accounting is not integrated with lease administration, leases expire and the payments keep going out. Or, variable payments are miscalculated. Or, lease options change and the payments don’t. All of these mistakes add up to more money than you might imagine. The best lease accounting software validates all payments according to the current lease terms in the system, and sends that information to AP to prevent overpayments.

The best lease accounting software is a comprehensive lease management platform that helps you take control of your leased portfolio and ALL associated costs.

Does lease accounting software help you make better leasing decisions?

With virtually all leases on the balance sheet, organizations (and their audit partners) now take a much closer look at leasing decisions. Can the lease accounting tool you’re considering help you make the most cost-effective choices?

For that, you need a central repository of ALL your lease data.

That’s why the most valuable enterprise lease accounting software aggregates data for real estate, equipment, vehicles, land, and anything else your organization leases. It also should collect information used in the day-to-day administration of your leases, not just the payment amounts and dates.

For data to inform your decision-making, you’ll also need powerful and flexible reporting and business intelligence tools. Look for the ability to roll up, drill down into the details, and produce ad-hoc reports that slice and dice your data exactly how you need it.

Calculations & Implementation

The ability to see side-by-side calculations for a lease can be a valuable tool for decision making. Only the best lease accounting software offers this feature along with the ability to do hypothetical calculations.

Once you understand the value you can expect to get from the best lease accounting software, the next question is, when can you expect to get that value? Some systems take much longer to implement and produce ROI than others.

If you’ve implemented an IWMS, you know what we mean. It can take years to get the full leasing platform in place and operational. You can bolt on a lease accounting tool that just does the calculations more quickly, but then you’ll be missing out on the lease management value mentioned earlier.

The best lease accounting software provides a complete, end-to-end solution with fast implementation: 30 days or less for software implementation and data migration.

What’s the true cost of lease accounting software?

Now that you understand how to compare value, it’s much easier to do a cost/benefit analysis of lease accounting solutions. However, there’s one more important point to consider: how are you calculating cost?

Remember that cost includes more than the price of the software. Don’t forget to factor in additional costs such as:

• Technology implementation: Does the vendor outsource software implementation and systems integration? How much extra will you have to pay for that if you need to hire consultants?
• Lease abstraction: Getting lease data out of old systems and paper documents can be the most costly and time-consuming part of the process. The best lease accounting software providers offer this implementation service. If your software vendor doesn’t and you’re forced to use consultants, you may pay extra to migrate abstracted data into your new system.
• Customizations: Have you ever bought software that worked just as you wanted right out of the box? Every organization needs customizations to adapt software to their terminology, processes and structure. Will you have to pay consultants to do that, too? Or is it easy to customize the software yourself?

Extra Charges

While some platforms advertise a low initial price, many providers charge extra for essential features or services. These additional costs can include fees for implementation services, data migration, customizations, and training.

For example, some software providers may charge for configuring custom reports, adding extra users, or integrating with other enterprise systems. There could also be additional fees for upgrades to advanced features or premium modules that aren’t included in the basic package. Even common tasks like creating custom reports or importing new data could be extra charges.

Make sure to ask vendors to present a list of all potential fees beyond the initial software purchase. This will help you compare options more effectively and ensure there are no surprises after you’ve committed to a specific platform.\

Support & Maintenance Costs

When choosing lease accounting software, it’s important to consider not just the initial purchase price but also ongoing support and maintenance costs. Many vendors offer different levels of support, from basic customer service to premium packages that include dedicated account management and faster response times. Some software providers may include these services as part of the base service, while others charge extra for support plans, software updates, or system maintenance. You may want to choose a software provider who offers these services as part of their package to avoid additional costs later on.

Now you’ve got a much more complete picture for comparing lease accounting tools. When you look at the true cost of software along with the value you can expect to get in return, choosing the best platform becomes a whole lot easier!

By: Joe Fitzgerald, Senior Vice President of Lease Market Strategy 

Spreadsheet applications are easily the most important and universal accounting tools used today—so much so that you’d never guess the first version was actually developed as a school project.

As the story goes, in 1978, computer programmer Dan Bricklin was pursuing an MBA at Harvard Business School. His finance class was tasked with an assignment to make financial projections for a hypothetical corporate merger using ledger sheets, the painstaking way that accountants manually tallied numbers in the bygone analog era.

Bricklin, apparently intent on getting an A while also eluding the heavy workload, developed a spreadsheet on a personal computer to electronically process the calculations. The idea was completely novel and would prove to be revolutionary. In less than a decade, spreadsheet programs like Lotus 1-2-3 and Microsoft Excel were dominating the market. Nearly 40 years later, not much has changed. Excel and (now) Google Spreadsheets are still widely used applications in accounting – a fact that astounded Bricklin himself. “It’s like whoa, we haven’t thought of something better yet,” he said in a 2015 interview with Quartz.

It is surprising that Excel continues to be the prevailing accounting practice because it is limited in addressing today’s sophisticated accounting practices and standards, and for that reason, it has become notoriously error-prone.

Here are some of the ways that spreadsheets are falling short for businesses.

Managing Stakeholders and Line Items

Accounting requires managing a lot of moving parts. Many businesses have several – and sometimes, even hundreds of assets and multiple stakeholders (Real Estate, Finance, Legal and HR, among others), which each translate into different line items on a balance sheet.

When it comes to spreadsheets, this ever-growing list of assets and stakeholders is a hotbed for errors. Research has repeatedly shown that 90% of spreadsheets contain errors and 50% of spreadsheet systems have “material defects.” Not only can these errors be destructive to business fundamentals and operations, but poor accounting practices can lead to failed audits, internal control deficiencies, fines, blown debt covenants and reduced credit ratings.

Some companies have been transitioning to sophisticated and targeted software programs to help mitigate errors in bookkeeping, while also giving financial professionals time to perform higher-level tasks. In lease accounting, for example, specialized software is designed to address the critical and often nuanced needs of managing real estate leases, creating space for collaboration across different departments and stakeholders. These types of systems can track lease details both at the property level and throughout a portfolio, resulting in accurate financial reporting, efficient auditing and also, guaranteeing that critical deadlines are met.

This has become a common trend throughout the business sector. There is a widespread exodus to more targeted accounting solutions. Mark Garrett, the former CFO at Adobe Inc., summed up the problem with spreadsheet applications back in 2017 when he told the Wall Street Journal, “I don’t want financial planning people spending their time importing, exporting and manipulating data, I want them to focus on what the data is telling us.” Adobe transitioned away from Excel last year.

Navigating Lease Accounting Complexities using Excel

Lease accounting standards are also minimizing the effectiveness of spreadsheet applications like Excel. The Financial Accounting Standards Board (FASB) issued accounting guideline ASC 840 in 1976, two years before Bricklin first dreamed of a spreadsheet. ASC 840 was the practicing standard until 2019, when FASB’s ASC 842 went into effect for public companies, requiring these enterprises to record leased assets on the balance sheet. These regulations are a shake-up to the standard accounting practice, requiring more sophisticated financial calculations and involved accounting practices—and spreadsheets just aren’t designed for this level of complexity.

The business community at large is recognizing the limitations of spreadsheet applications as a result, and many companies—Levi’s, P.F. Chang’s and Coca-Cola, to name a few— have transitioned to tailored accounting solutions that better address modern practices. “Excel just wasn’t designed to do some of the heavy lifting that companies need to do in finance,” said Paul Hammerman, a business applications analyst at Forrester Research Inc., in an interview with the Wall Street Journal.

The pandemic also ushered in changes in business strategy that leads to the need for more sophisticated technology. Real estate has been central to these changes because for many businesses, real estate costs became a major liability during the pandemic. In the Commercial Real Estate in 2022: Outlook for an Industry in Recovery survey from Visual Lease, 100% of real estate professionals reported their tenants had requested changes to a commercial property lease in response to the pandemic, and in a separate survey conducted by Deloitte, 67% of respondents said they are executing a real estate rationalization program to either reduce, rightsize, expand or reduce ownership responsibilities.

The Benefits of Lease Accounting Software vs Excel

Lease accounting software offers a suite of benefits that far exceed the capabilities of Excel, especially for organizations managing large or complex lease portfolios. Unlike spreadsheets, which rely heavily on manual entry and fragmented processes, lease accounting software provides a centralized platform designed to simplify lease management and compliance.

One of the most critical advantages is centralized data management. Lease software stores all lease-related information in one place, allowing teams across departments to access accurate and up-to-date data at any time. This eliminates the risk of working with outdated spreadsheets or duplicate files, which can lead to errors.

Additionally, software offers automated compliance tools that streamline reporting under accounting standards like ASC 842 and IFRS 16. These tools handle complex calculations, such as right-of-use assets (ROU) and lease liability adjustments, ensuring accuracy without manual entry. With automated compliance, businesses can prepare accurate financial reports, avoid audit risks, and meet regulatory standards.

Lease accounting software is also scalable. As businesses grow, their lease portfolios often expand. Unlike Excel, which becomes increasingly difficult to manage with larger datasets, specialized software can easily accommodate more leases by offering tools to manage the additional volume without decreasing efficiency or accuracy.

Data Security Features

Data security is a growing concern for organizations managing sensitive financial information, and Excel simply doesn’t provide the safeguards needed to protect lease data. Spreadsheets are often stored on local machines or shared via unsecured channels like email, making them highly vulnerable to breaches and unauthorized access.

Lease accounting software offers security features that protect sensitive information from potential threats. These platforms typically employ data encryption, ensuring that all information is secure both at rest and in transit. Multi-factor authentication (MFA) is another common feature, adding an extra layer of security by requiring users to verify their identity before accessing the system.

Audit trails are another critical security component offered by lease software. These tools track every change made within the system, recording who made it and when. This transparency not only strengthens data integrity but also simplifies audits by providing a clear record of all modifications.

Cost Savings of Transitioning to Lease Accounting Software

Although lease accounting software requires an upfront investment, the long-term cost savings can be substantial compared to relying on Excel. One of the most immediate savings comes from reduced audit costs. With clean, centralized data and automated compliance features, companies can minimize the back-and-forth with auditors, saving both time and money.

Lease accounting software is also more efficient than Excel and reduces the time finance teams spend on manual data entry and error correction. With automated workflows and real-time updates, teams can focus on strategic tasks rather than combing through spreadsheets to reconcile discrepancies.

Software can also help businesses identify areas where they’re overspending. For example, lease management tools often include analytics dashboards that highlight high-cost leases or inefficiencies in portfolio management. By identifying these opportunities, organizations can renegotiate leases, consolidate spaces, or make other adjustments to reduce expenses

Bricklin was right; it is time to find something better. As accounting standards and business practices evolve, business organizations need to upgrade their technology, as well—and the toolkit should include a dedicated accounting software program that is designed to accommodate accounting complexities and modifications while empowering companies to maintain compliance with accounting standards.

That is certainly true when it comes to proper lease management and accounting. We are seeing more and more organizations recognize the need for dedicated technology solutions to not only achieve, but maintain compliance with new standards and regulations. These solutions are bringing the industry into a new age, and it’s about time.

Want to see how Visual Lease’s platform works? Request a demo today.

1. Underestimating the time and resources required

Ask anyone who has helped companies through lease accounting implementation projects, and they will all tell you the same thing: many firms underestimated the time and the resources needed to get it done. So they waited too long to get started. And they failed to engage the help they needed early enough. We actually had a company come to us only 4 weeks prior to their implementation deadline! We were able to help, but needless to say it was a difficult period for them that stretched right up until their first quarterly reporting date in March.

Before accounting teams fully understand the scale and the scope of transitioning to a new lease accounting software, they often assume it will be a simple matter to gather data, do a few calculations, and produce journal entries. In reality, there are many more accounting complexities, logistical issues, and technical details than you may expect. If you wait too long to start or fail to plan for adequate resources, you can easily be blindsided by unexpected issues and wind up not being ready in time to meet your deadline.

Read this for details you might not know about lease accounting implementation: How to Implement Lease Accounting Technology

2. Choosing the wrong implementation team

Because lease accounting implementation is a complex project with high stakes and many stakeholders, we highly recommend having an experienced project manager spearhead your effort. That person could be someone from your own internal project management team, an outside consultant, or even a representative from your accounting advisory firm.

When it comes to putting together the rest of the team, don’t go too big or too small. With a team of 15 people, you’ll face analysis paralysis and take too long to make decisions. However, if you leave out key stakeholders, you run the risk of making mistakes that are costly and time consuming to fix later.

For example, it’s essential to include representatives from Real Estate and others who manage your leases. These lease experts can make sure you are collecting important data that you’ll need for performing calculations and journal entries. For example, we worked with one company that came to us thinking they had all their data ready for importing. However, they missed an important component: they had no commencement dates for their property leases. That happened because they collected payment information with no input from the Real Estate team.

3. Configuring your lease database too soon

It’s certainly smart to engage your lease accounting technology vendor early in the process. However, software implementation starts with gathering your requirements and building a database. If you have not yet made accounting decisions and begun to gather your lease data, you might not be ready to configure your database just yet.

Your vendor will ask questions during this process that you might not be ready to answer. If you guess wrong, you could make errors that mean re-work later.

The most efficient strategy (both for optimizing time and choosing the right software) is to make accounting decisions and gather data while you’re shopping for technology.

4. Making accounting decisions too late

We have seen too many companies jump into data collection before making the important accounting decisions that affect exactly which data points are needed for lease accounting calculations.

Practical expedients are a good example. The practical expedients you elect to take have an impact on how your data needs to be structured and broken down. We saw a company that had centralized all their lease payment data only to realize that due to a practical expedient they needed to break lump sum rents down into lease and non-lease components. That caused considerable re-work very late in the process, eating up the time they had planned for testing (more on testing to come).

Discount rates are also frequently overlooked. Some firms decide to use the same rate across the board for all leases, while others use a complex table of rates for different types of calculations. To avoid time consuming re-work and costly delays, It’s important to make those decisions BEFORE running your lease accounting calculations and producing journal entries.

5. Failing to validate your data

When it comes to testing, many firms focus on validating the mathematical calculations produced by their lease accounting software. Here’s the part you must focus on: making sure your lease data is complete and accurate.

If your data is wrong, the accuracy of your financial reports is compromised. We don’t need to tell you how serious the consequences can be when that happens. You could end up violating a debt governance. Reporting errors often require time-consuming investigation and adjustments to fix.

Are you sure you have a complete set of payment data from all leases? Are start and end dates valid? Have you included lease amendments?

We recommend developing models and testing with your actual lease data to uncover anything that you might have missed. If you find inconsistencies, you need to dig into what’s missing or incorrect in your data.

How can you avoid this last-minute panic?

• Include all lease stakeholders in the process so you capture accurate and complete data from the outset.
• Start collecting data now and get it into your lease accounting database as early as possible.
• Plan for plenty of time for data validation.

6. Neglecting User Training

One of the most common mistakes companies make is not prioritizing user training during the implementation of new lease accounting software. Employees who don’t fully understand how to use the system may struggle with data entry, reporting, and accessing the platform’s key features. This can lead to a lack of adoption, data inaccuracies, and underutilization of the software’s capabilities.

To avoid this, it’s important to begin user training early in the process and provide continuous support. Consider offering video tutorials and guides to ensure that all users feel confident and capable of using the software. Remember, a well-trained team is essential to maximizing the value of your lease accounting platform.

7. Skipping Thorough Testing Before Going Live

Rushing through the testing phase and skipping thorough tests is a mistake that can lead to major issues once your lease accounting software is live. Without properly testing how the platform functions, integrations, and data accuracy, you risk encountering system bugs, integration problems, or missing features that could affect operations and delay reporting.

Before going live, conduct in-depth testing using real data to ensure the system is performing as expected. Test key functionalities, like data migration, reporting, and automation processes, to catch any issues early. This will help you avoid disruptions and ensure that the platform is ready to fully go live.

Avoiding these common mistakes when implementing lease accounting software can make the difference between a smooth transition and a drawn-out, problematic process. With careful planning, ongoing support, and attention to detail, your business will be well-prepared to leverage the full potential of your lease accounting software. If you’re looking for assistance with implementing Visual Lease’s platform, contact us today. Our team provides implementation services to help simplify the process and ensure a smooth migration.