Copier Lease ASC 842 Small Business Impact: What It Means for Your Bottom Line
You leased a copier to keep things simple. Now your accountant is telling you the lease needs to go on your balance sheet, and it might affect your bank loan. Welcome to ASC 842.
This standard hit private companies in 2022, and many small business owners are still catching up. Here’s what it actually means for your business, in plain English.
The Core Change in 30 Seconds
Under the old rules, your copier lease was invisible on the balance sheet. You paid $400/month, recorded it as rent expense, and nobody asked questions.
Under ASC 842, that same lease creates two new items on your balance sheet:
- A right-of-use (ROU) asset representing your right to use the copier
- A lease liability representing what you owe over the remaining term
For a standard 60-month lease at $400/month, you’re adding roughly $21,000 to both sides of your balance sheet on day one. The total expense over the life of the lease stays about the same. It’s the presentation that changed.
Real Impact #1: Your Debt Ratios Change
This is the impact that hits hardest. If your business has a bank loan with financial covenants, adding lease liabilities to your balance sheet changes your numbers.
Example: Your business has $500,000 in assets, $200,000 in liabilities, and $300,000 in equity. Your debt-to-equity ratio is 0.67. Your bank covenant says it can’t exceed 1.0.
Now you put three copier leases on the balance sheet, adding $60,000 in lease liabilities. Your new debt-to-equity ratio jumps to 0.87. You’re still compliant, but the cushion got a lot thinner.
Add in a few other equipment leases, a vehicle lease, and an office space lease, and you could be looking at a covenant violation. This has happened to real businesses.
What to do: Talk to your banker before your next financial statement filing. Many banks have agreed to exclude ASC 842 lease liabilities from covenant calculations, but only if you ask. Don’t wait for them to notice.
Real Impact #2: Financial Statements Look Different
If you share financial statements with investors, partners, or potential buyers, the balance sheet changes can raise eyebrows.
Your total assets go up (because of the ROU asset). Your total liabilities go up (because of the lease liability). Your equity stays roughly the same, but the ratios shift.
For a business with $1 million in total assets, putting $50,000 in copier and equipment leases on the balance sheet represents a 5% increase in both assets and liabilities. That’s noticeable.
The income statement impact is smaller. For operating leases (which most copier leases are), the total expense each year stays about the same as before. It just gets labeled differently. Instead of “rent expense,” you see “lease expense” that includes both amortization of the ROU asset and interest on the lease liability.
Real Impact #3: Your Accounting Costs Go Up
This is the one nobody talks about upfront. ASC 842 compliance takes time, and time costs money.
Here’s what your accountant now needs to do for each copier lease:
- Calculate the present value of lease payments
- Set up an amortization schedule for both the asset and liability
- Record monthly journal entries (more complex than before)
- Prepare additional disclosures for your financial statements
- Handle any lease modifications or renewals
For a single copier lease, the extra work might add $300 to $800 per year to your accounting bill. If you have multiple equipment leases, expect $1,000 to $3,000 in additional annual costs. Some CPA firms charge a flat fee for ASC 842 compliance. Ask yours.
Understanding the full cost picture helps. Our guide on copier leasing basics covers what you should expect to pay.
Real Impact #4: Lease Decisions Get More Strategic
Before ASC 842, leasing was almost always simpler from an accounting perspective. Now, buying equipment outright or financing it with a loan might actually be cleaner on the books.
When you buy a copier with cash or a traditional loan:
- The copier goes on the balance sheet as a fixed asset (this happened before too)
- The loan goes on as a liability (also nothing new)
- You depreciate the asset over its useful life
- No new ASC 842 calculations needed
When you lease that same copier:
- The ROU asset and lease liability go on the balance sheet (new requirement)
- More complex amortization schedules
- More disclosures required
- Every modification triggers recalculation
The accounting difference alone doesn’t mean buying is always better. But it’s now a factor in the decision. For a detailed comparison, check out our lease vs. buy cost analysis.
What Most Guides Miss
Beyond the textbook changes, here’s what catches small businesses off guard.
Embedded leases in your copier service contract. You might have a managed print agreement that you think is just a service contract. But if the contract specifies a particular copier that only your company uses and you control how it’s used, there’s an embedded lease in there. That embedded lease needs ASC 842 treatment. Review every copier-related contract, not just the ones labeled “lease.”
The practical expedient package saves time. When you first adopt ASC 842, FASB lets you take a “package of practical expedients.” This means you don’t have to reassess whether existing contracts contain leases, reclassify old leases, or redo initial direct cost calculations. Take this package. It saves hours of work and your CPA will thank you.
Related party leases need fair market value. If you lease a copier from a company you or your family owns (it happens more than you’d think), ASC 842 requires you to use the “enforceable terms” of the lease. But if the terms aren’t at fair market value, you might need adjustments. This is a common audit finding for family-owned businesses.
Subleases create a second layer. If you lease a copier and then sublease it to a tenant or affiliate, you now have two leases to account for. The original lease stays on your balance sheet, and the sublease creates a receivable. It doubles the accounting work.
Year-end lease roll-forward schedules are required. Your financial statements now need a detailed rollforward showing beginning balances, additions, reductions, and ending balances for both ROU assets and lease liabilities. If your accountant hasn’t set this up yet, they need to.
How to Reduce the ASC 842 Burden
You can’t avoid the standard, but you can minimize its impact.
- Use the short-term lease exception. Leases of 12 months or less with no likely renewal stay off the balance sheet.
- Negotiate separate service agreements. Keep the equipment lease and the maintenance/service contract as two separate documents. This often reduces the amount that goes on the balance sheet.
- Consider buying for smaller machines. A $3,000 desktop copier might be cheaper to buy outright than to lease and account for over 5 years.
- Consolidate lease end dates. If all your copier leases end at the same time, your accountant does one set of calculations instead of staggering them throughout the year.
- Use lease accounting software. Tools like LeaseQuery, Visual Lease, or even Excel templates built for ASC 842 can cut your compliance time in half.
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