New FASB Rules for Copier Lease Accounting: What Changed and What to Do About It
You’ve probably heard that the rules around lease accounting changed. Maybe your CPA mentioned it. Maybe your banker asked about it. Either way, if your business leases a copier, the new FASB rules affect how that lease shows up in your financial statements.
Here’s what actually changed, who needs to care, and what you should do about it.
What FASB Changed and Why
FASB (the Financial Accounting Standards Board) released ASC 842 to replace the old lease standard, ASC 840. The old rules had a well-known problem: companies could keep billions of dollars in lease obligations hidden off their balance sheets. Investors and lenders couldn’t see the full picture.
The fix was straightforward in concept. Under ASC 842, almost all leases with terms longer than 12 months must appear on the balance sheet. Both the right to use the leased equipment (an asset) and the obligation to make payments (a liability) get recorded.
Public companies adopted these rules starting in 2019. Private companies had until fiscal years beginning after December 15, 2021. So if your business has a fiscal year starting January 1, 2022 or later, these rules are already in effect for you.
The old rule let companies classify leases as either “operating” or “capital.” Only capital leases went on the balance sheet. The vast majority of copier leases were structured as operating leases specifically to avoid balance sheet treatment. That loophole is now closed.
How the New Rules Affect a Typical Copier Lease
Let’s use real numbers. Say your small business signs a 48-month copier lease at $375/month. Under the old rules, you’d just book $375 as rent expense each month. Your balance sheet wouldn’t change at all.
Under ASC 842, here’s what happens on day one:
- You calculate the present value of 48 payments of $375, using your incremental borrowing rate (let’s say 6%)
- The present value comes out to roughly $16,100
- You record a right-of-use asset of $16,100
- You record a lease liability of $16,100
Each month going forward:
- You reduce the lease liability by the principal portion of the payment
- You record interest expense on the remaining liability
- You amortize (reduce) the right-of-use asset
The total expense over the life of the lease stays about the same as before. The difference is where it shows up. Instead of a single rent expense line, you get interest expense plus amortization. And your balance sheet carries both the asset and the liability until the lease ends.
Wondering what typical copier lease payments look like? Our copier lease cost guide has current numbers.
Two Types of Leases Under the New Rules
ASC 842 still has two categories: finance leases and operating leases. Both go on the balance sheet now, but they’re recorded slightly differently.
Finance lease (formerly “capital lease”). This applies when the lease is basically a purchase in disguise. The copier transfers to you at the end, the lease covers most of the copier’s useful life, or the present value of payments equals most of the copier’s fair value. With a finance lease, you record amortization and interest separately on the income statement. The expense is front-loaded, meaning you pay more in the early years.
Operating lease. This is the more common type for copier leases. You’re renting the equipment and giving it back at the end. With an operating lease under ASC 842, you record a single lease expense on a straight-line basis. The income statement impact is the same as it was under the old rules. The only change is the balance sheet.
Most standard copier leases where you return the equipment at the end will be classified as operating leases. That’s the simpler path.
Who Actually Needs to Follow These Rules
This is the question that matters most for small business owners. The answer depends on your financial reporting framework.
Must follow ASC 842:
- Any business preparing GAAP-compliant financial statements
- Businesses with bank loans that require GAAP reporting
- Companies with outside investors expecting GAAP statements
- Any SEC-reporting company
Don’t need to follow ASC 842:
- Sole proprietors and small LLCs using cash-basis accounting
- Businesses preparing only tax-basis financial statements
- Companies using other special purpose frameworks
According to the AICPA, the majority of small businesses in the U.S. don’t prepare GAAP financial statements. If you’re filing a Schedule C or a simple corporate tax return, ASC 842 probably doesn’t apply to you.
What Most Guides Miss
The technical articles explain the rules well enough. Here’s the real-world stuff they skip.
Your discount rate matters more than you think. ASC 842 says you should use the rate the lessor charges you (the rate implicit in the lease). But copier leasing companies almost never share this rate. So you default to your “incremental borrowing rate,” which is the rate you’d pay to borrow a similar amount. The difference between a 5% and 8% rate on a $400/month, 60-month lease changes the right-of-use asset by about $1,500. That’s real money on a small business balance sheet.
FASB gave private companies a practical shortcut. Private companies can use a risk-free rate (like the U.S. Treasury rate) instead of their incremental borrowing rate. This is easier to find and apply. It usually results in a higher present value (and bigger balance sheet numbers), but it saves time and CPA fees.
Lease modifications trigger remeasurement. Changed your copier mid-lease? Extended the term? Added a second machine to the contract? Each of these counts as a lease modification under ASC 842. You need to recalculate the lease liability and adjust the right-of-use asset. This is where accounting costs pile up. If you’re switching equipment often, consider how early termination fees play into the total cost.
Bundled service contracts create separation headaches. Many copier leases include maintenance, toner, and service in one monthly payment. Under ASC 842, you should separate the lease component from the non-lease components. The lease portion goes on the balance sheet. The service portion stays as a regular expense. But FASB gave a practical out: you can choose not to separate them and treat the whole thing as a lease. Just know that this inflates your balance sheet numbers.
Transition method affects your opening numbers. When you first adopt ASC 842, you can choose between a full retrospective approach (restating prior years) or a cumulative-effect approach (adjusting only the adoption year). Most small businesses use the cumulative-effect method because it’s simpler. But make sure your accountant documents which method was chosen.
Steps to Take Right Now
If you haven’t dealt with ASC 842 yet, here’s your action list:
- Pull out every copier lease and equipment lease you have. Read the terms. Note the monthly payment, lease term, renewal options, and buyout amounts.
- Talk to your CPA. Ask whether you need to follow ASC 842 based on your reporting framework.
- Decide on the short-term exception. If any leases are 12 months or less, you can keep them off the balance sheet.
- Pick your discount rate method. Private companies can use the risk-free rate shortcut.
- Set up tracking. You need to track right-of-use assets and lease liabilities for each lease separately. Spreadsheets work for one or two leases. Beyond that, consider lease accounting software.
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