Introduction to FASB 91
The Financial Accounting Standards Board (FASB) issued Statement No. 91, which provides guidance on the accounting for nonrefundable fees and costs associated with securing a loan. This statement helps companies determine whether to capitalize or expense these costs.
FASB 91 is crucial for companies to ensure compliance with accounting standards and to provide accurate financial reporting. It helps companies to make informed decisions about their financial operations and to avoid potential errors or misstatements in their financial statements.
Capitalized vs. Expensed Costs
Capitalized costs are those that are recorded as assets on the balance sheet and amortized over a period of time. Examples of capitalized costs under FASB 91 include loan origination fees and debt issuance costs. These costs are typically capitalized because they provide a benefit beyond the current period.
On the other hand, expensed costs are those that are recorded as expenses on the income statement in the period incurred. Examples of expensed costs under FASB 91 include loan application fees and credit report fees. These costs are typically expensed because they do not provide a benefit beyond the current period.
Examples of FASB 91
For example, a company may pay a loan origination fee to secure a loan. Under FASB 91, this fee would be capitalized and amortized over the life of the loan. Another example is a company that pays a debt issuance cost to issue bonds. This cost would also be capitalized and amortized over the life of the bonds.
In contrast, a company that pays a loan application fee or a credit report fee would expense these costs in the period incurred. These costs are not capitalized because they do not provide a benefit beyond the current period.
Impact on Financial Reporting
FASB 91 has a significant impact on financial reporting because it affects the way companies record and report nonrefundable fees and costs associated with securing a loan. By capitalizing certain costs and expensing others, companies can ensure that their financial statements accurately reflect their financial position and performance.
The correct application of FASB 91 is crucial to avoid errors or misstatements in financial statements. Companies must carefully evaluate the nature of the costs incurred and determine whether to capitalize or expense them in accordance with the accounting standards.
Conclusion
In conclusion, FASB 91 provides guidance on the accounting for nonrefundable fees and costs associated with securing a loan. Companies must understand the difference between capitalized and expensed costs to ensure compliance with accounting standards and to provide accurate financial reporting.
By applying the principles of FASB 91, companies can make informed decisions about their financial operations and avoid potential errors or misstatements in their financial statements. It is essential for companies to consult with accounting professionals to ensure that they are in compliance with the accounting standards and to take advantage of the benefits provided by FASB 91.
Frequently Asked Questions
What is the purpose of FASB 91?
The purpose of FASB 91 is to provide guidance on the accounting for nonrefundable fees and costs associated with securing a loan.
What are capitalized costs under FASB 91?
Capitalized costs under FASB 91 include loan origination fees and debt issuance costs, which are recorded as assets and amortized over a period of time.
What are expensed costs under FASB 91?
Expensed costs under FASB 91 include loan application fees and credit report fees, which are recorded as expenses in the period incurred.
How does FASB 91 affect financial reporting?
FASB 91 affects financial reporting by requiring companies to capitalize certain costs and expense others, which can impact their financial statements and financial ratios.
Why is it important to apply FASB 91 correctly?
It is essential to apply FASB 91 correctly to avoid errors or misstatements in financial statements and to ensure compliance with accounting standards.
Who should companies consult to ensure compliance with FASB 91?
Companies should consult with accounting professionals to ensure compliance with FASB 91 and to take advantage of the benefits provided by the accounting standards.