Q: With the advent of ACS 842, have you done, or will you do, any training on how cash flow needs to be reconsidered?
A: From what we understand, ASC 842 will have virtually no impact on the income statement. It will have no impact on the operating sections of both the UCA and FASB 95 cash flow statements but it will impact the capital spending and financing sections of both the UCA or FASB statements. It has the greatest impact on the balance sheet and on disclosure requirements.
The payments recorded on the income statement for capital or finance leases remain unchanged. The payments for operating leases reported on the income statement remain unchanged. Therefore, the operating sections of the UCA and FASB 95 cash flow statements remain unchanged.
The balance sheet will now include Right of Use (ROU) assets and liabilities associated with operating leases. This ROU liability account will generally be segregated into a current portion and remaining long-term portion, which means at least three new balance sheet accounts. Consequently, leverage will be affected but the cash flow statements will still balance to the change in cash, which does not change before or after the implementation of ASC 842.
Finally, the footnotes to the accrual financial statements now need to include detailed information about all aspects of the operating leases, including the methodology used to record the asset and liability values reported on the balance sheet.
You might check with an accountant you work with to get his or her views and interpretation of the impact ASC 842 will have on the income statement, balance sheet, cash flow statements and disclosure requirements.
Course overview: UCA Cash Flow Statement, Traditional "Cash Flow," and EBITDA