What is ASC 718?
The standard that turns equity grants into a real, recognized expense on your income statement.
ASC 718: definition
Equity grants are not free - they transfer value to employees, and ASC 718 makes that cost visible on the P&L. You measure the grant’s fair value at the grant date (often using a Black-Scholes model for options) and recognize it as compensation expense over the service/vesting period, with adjustments for forfeitures. It is a non-cash expense but a real one that auditors and investors expect to see.
- Fair value measured at grant date (Black-Scholes for options)
- Expense recognized over the vesting/service period
- Non-cash, but reduces reported GAAP net income
- Requires tracking grants, vesting, forfeitures, and modifications
How Fintra handles it
Fintra ties equity to the ledger: it computes ASC 718 fair value for each grant, builds the expense amortization schedule over the vesting period, and posts the stock-comp expense to the GL automatically - with forfeiture and modification handling. Because the cap table and the accounting share one system, the stock-comp expense always reconciles to the grants outstanding.
Worked example
Frequently asked questions
What does ASC 718 require?
It requires measuring the grant-date fair value of stock-based compensation and expensing it over the vesting period. For options, fair value usually comes from a Black-Scholes model; the resulting expense reduces GAAP net income even though no cash changes hands.
Is stock-based compensation a real expense?
Yes - it is a non-cash expense, but it represents genuine value transferred to employees and dilution to shareholders. Investors watch it closely, and it is a required part of GAAP financials. It is added back in some cash and adjusted-earnings measures.
How is the fair value of an option calculated?
Typically with an option-pricing model like Black-Scholes, using inputs such as the stock’s fair value (from the 409A), strike price, expected term, volatility, and risk-free rate. Fintra computes this for each grant to drive the ASC 718 expense.
How does Fintra handle ASC 718?
Fintra computes grant-date fair value, schedules the expense over vesting, and posts it to the general ledger automatically with forfeiture handling - and because the cap table and books share one system, the expense always reconciles to grants outstanding.
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