From the course: Accounting Foundations: Leases
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The FASB four criteria from 1976
From the course: Accounting Foundations: Leases
The FASB four criteria from 1976
- Let's say that you just signed a five-year, non-cancellable lease contract for a piece of equipment that you plan to use in your business for the next five years. - On the date the lease is signed, should you report the equipment as an asset in your company balance sheet? - And should you report the obligation to make the future lease payments as a liability on your company's balance sheet? - These questions have haunted accountants for decades. - [Kay] Now the group that makes accounting rules in the United States is called the Financial Accounting Standards Board. - We usually just call them the FASB. Well, back in 1976, the FASB created a set of rules that they thought would answer these accounting questions for good. - It was the view of the FASB that most lease assets and most lease obligations should indeed be reported on the balance sheet where people could see them. - So the FASB created four criteria to apply to each lease to tell accountants when to…
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