By John Heveron

Leases must be capitalized in your financial statements for calendar year 2022 and fiscal years ending after December 31, 2022.  This will apply to in place leases, although month-to-month leases and leases with a term of less than one year will not be required to be capitalized.

When this is done, your balance sheet will show a new, potentially very large, asset representing the right to use the leased property.  It will also show a new liability, which is the obligation to pay under the lease agreement.

This won’t increase or decrease your equity or your surplus/deficit.  However it may affect your current ratio.  You should check whether this will have an impact on any loan covenants.

Large CPA firms have  quite a bit of helpful guidance regarding lease capitalization procedures. Check out

Leases Get Capitalized for 2022

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