NetLease - Adding a Prior Period Lease

Overview

If you are wanting to add a lease that relates to a prior period, the process is the same as the Go Live process. Follow below for the Go Live Process for a prior period lease.

Step 1: Set Up Lease Record

Start from a blank lease record by navigating to NetLease > Lease Management > New Lease.

This link provides a detailed run through of creating a new lease record.

Choosing a Commencement Date

You have two options when choosing what the commencement date will be, depending on how you want the system to calculate the ROU Asset and Liability

Option 1: Use the original commencement date

Under this option, the system will calculate the amortization schedule from the original date, meaning the ROU asset and liability will reflect the life to date impact. This option is best if:

1. The commencement date of the lease is after your ASC 842 adoption date and the lease has been tracked in your previous system as an ASC 842 lease.

2. The commencement date of the lease is after your ASC 842 adoption date and the lease has had no GL impact on your books yet. This could be that the lease was overlooked and not added so you need to book catch-up entries for the GL impact from past periods.

Option 2: Use the Current Date as the Commencement Date

This method will calculate the ROU asset and liability as if the lease started on the current date. Note, since the lease is starting at the current date, the schedule will not reflect historical activity from the original commencement date to the current date.

This method should be chosen if:

1. The lease is not on your books yet and you do not have the desire to reflect historical lease payments or lease expense from past periods.

2. The lease is already recorded in your books and you want to capture the current lease liability and Right-of-Use (ROU) asset balances as they exist today. Since you’re not including historical information, you’ll use the ROU Adjustment field to ensure the ROU asset balance established in NetLease matches your existing book balance. The lease liability does not require an adjustment, as it always equals the net present value (NPV) of future lease payments. However, the ROU asset is initially established at the lease commencement date and then amortized differently from the lease liability. This difference in amortization rates may create a variance that needs to be adjusted.

To calculate the appropriate ROU Adjustment:

Review your accounting records to determine the net ROU asset, which equals the gross ROU asset minus accumulated amortization.
Compare the net ROU asset to the lease liability as of the commencement (or current) date.
- If the net ROU asset is greater than the lease liability, enter the difference as a positive number in the ROU Adjustment field.
- If the net ROU asset is less than the lease liability, enter the difference as a negative number.

This process ensures the lease is recorded in NetLease from the current date forward and that the balances in NetLease align with those already reflected on your books.

The ROU Adjustment field can be found on the lease record under the Accounting subtab.

Option 3: Use the ASC 842 Adoption Date as the Commencement Date

If a lease was missed during the initial NetLease implementation—or has been tracked outside of NetLease for any reason—and has not yet been transitioned to ASC 842, you should set the adoption date as the lease commencement date when entering it into the system.

However, if the lease has already been accounted for under ASC 842 and there is a deferred rent balance as of the adoption date, you’ll need to enter that deferred rent amount in the ROU Adjustment field. This adjustment ensures the ROU asset is recorded accurately in NetLease.

Once all of the details of the lease record have been entered, select Save.

Step 2: Generate Schedule on Lease Record

Once you save the lease record, generate the lease schedule. Once the schedule has been generated, take the time to validate the schedule to ensure the proper values are listed.

It is important that the values of the lease record are complete and correct before moving to the next step. Once the status of the lease changes from Pending to Commenced, you will no longer be able to edit the details of the lease without modifying the lease.

Step 2: Commence the Lease

Once the lease schedule has been generated and validated, select Commence. The status of the lease should change from Pending to Commenced. This step is a status change, there is no journal entry associated with this step.

Step 3: Pick a Go Live Date

To ensure your go-live entry is posted in the correct accounting period, you may need to adjust the system go-live date. Navigate to your NetLease System Setup by going to NetLease > NetLease Setup > System Setup and update the Go Live Date to the desired period.

The go-live date determines when a lease will begin to have general ledger impact in NetLease. It should be set to the first day of the month in which you want that impact to start.

If the current date is used as the commencement date:
The go-live date will not be relevant, since the lease will automatically generate its initial balance entry in the current month.
If the original commencement date is used and no catch-up entries are desired:
Update the go-live date to the date you want the lease to begin affecting the GL. This allows the lease to have financial impact only from that point forward, without retroactive adjustments.
If the original commencement date is used and catch-up entries are desired:
Set the go-live date to either the original commencement date or an earlier date. This ensures NetLease generates the necessary historical entries to bring the lease current.

Step 4: Catch-Up and Go Live Entries

Leases with Catch-Up Entries

If the lease has not previously impacted the books and the you choose to use the original commencement (option 1) date in order to record historical activity, the lease will not have a go-live entry.

In this case:

Ensure that your accounting preferences allow for transaction dates outside of the current posting period.

To check these settings, navigate to Setup > Accounting > Accounting Preferences

2. Run the initial balance entry and all amortization entries from the commencement date through the current period.

Navigate to the desired lease and select Run Journals. This will bring you to a journal processing screen where you can run your initial balance entry.

3. Once you have ran your initial balance entry, navigate back to the lease record and select "Run Journals" again.

Make sure the period is set to the current period and the type should auto fill to Amortization. If you have "Run All Months Up to and Including" selected, then it should populate with an amortization entry for each period from the commencement date to the current period.

This process will post all necessary general ledger (GL) activity into the current or first open period.

4. After posting, review and clear the following accounts as needed:

Lease Payable Clearing Account

When running catch up entries there is a possibility of doubling up on lease expense if lease payments were previously recorded directly to lease expense before the lease was entered into the system. Create a reclassification journal entry to clear out the lease payable clearing account and ensure the expense account only reflects amortization entries generated by the system. The reclassification entry should be as follows for the amounts that were booked to lease expense on bills :

Debit: Lease Payable Clearing Account

Credit: Lease Expense

ROU Asset Clearing Account

For the ROU Clearing Account, any amounts related to initial direct costs, lease incentives, and prepaid amounts should be reclassified from the original accounts to the ROU Clearing Account.

Debit: ROU Asset Clearing Account

Credit: Initial Direct Costs / Prepaid Rent / Lease Incentives

Leases with a Go-Live Entry

For leases that are starting fresh in NetLease and will have GL impact only moving forward, a go-live entry will be generated automatically based on the selected go-live date. This entry establishes the opening balances for both the lease liability and the ROU asset.

Running Go Live Entry

On the lease record, select Run Journals to run the NetLease Go Live Entry.

For further details on the specific go live entry, see this article.

Step 5: Manual Journal Entry

As part of the go-live process, you must reverse the pre-NetLease balances as of the go-live date. This is necessary because NetLease will generate entries to establish lease balances at go-live, and failing to reverse the previous balances would result in double counting on the balance sheet.

Depending on your accounting treatment before adding the lease, the manual journal entry will differ:

Option 1: Lease Already on the Books and Tracked

The following accounts should be cleared out

ROU Asset balance
ROU Accumulated Amortization balance
Lease Liability balance

The balances to be reversed should reflect the amounts on the books as of the day before the go-live entry. However, the manual journal entry used to record these reversals should be dated to match the go-live entry.

Example:
If the go-live date is October 1, you should reverse the balances as of September 30, but the manual entry itself should be dated and posted to October 1

See this article under "Manual Reversing Entries" for the exact journal entry to run.

Option 2: Lease Not Previously Booked

While there is no reversal entry required, the Go Live Clearing account will still need to be cleared out after Go Live.

Generally the entry will be:

Credit: Go Live Clearing Account

Debit: Expense Account (the balance of the clearing account relates to current year lease expense)

Debit: Retained Earnings (the balance of the clearing account relates to prior-year impacts)

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