Every person decides about which one is more affordable to them leasing place or buying a business facility.
A lease is a contract between the property owner and the tenant that provided terms under which the tenant agrees to rent property (Stewart, 2015). According to the Financial Accounting Standards Board, a lease is assets that need to be reported in financial statements. Under ASC 840 standards, there is two type of leases: operating lease and capital lease.
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Operating leases is used for short-term leasing, and the assets are not included on the balance sheet. Operating lease listed on the financial statement as a rent expense. Whereas, a capital lease is treated more like a loan and is used for a long-term lease and therefore stays on the balance sheet (Ellis, 2017). They must disclose qualitative and quantitative requirements, including information about variable lease payments and options to renew and terminate leases.Starbucks has different leases which are reported in its 10-K form under operating leases. The purpose of leasing under operating leases is to have retail stores, roasting, distribution, and warehouse facilities, and facilities for their corporate offices (Starbucks Corporation, 2017).
Operating leases in Starbucks financial statements are rent expenses and disclosure items. As required by GAAP, Starbucks also record an amortization and costs of its properties (Starbucks Corporation, 2017). Moreover, Starbucks capital lease included property, plant, and equipment. Reporting leases are crucial to investors to understand how the company is performing.
The terms of Starbucks lease can affect company’s assets and liabilities. Therefore, SEC and FASB work together to make the company’s financial report more transparent and accurate to the investors.