In an interview, if they ask what is the difference between operating lease and finance lease, I was curious on how one should respond. I am confused on which one is viewed as debt after new accounting rule?
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With ASC842 both op and fin leases are now recognized on balance sheet, but finance leases are more like debt since they will transfer ownership at the end. Think of operating leases are more like renting. One thing we struggled with was the GAAP cash recording as a major portion of our rent expense is prepaid and 842 doe not allow for prepaids - everything in long term ROU. So you may want to think around that as it won't be part of your Working Capital any longer. We basically ended up adding a line to Cash from Operations to make this tie into GAAP. This can be a good counter question for the interviewer on how they have handled or would handle this from cash perspective.
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