NetLease - True Up Modification Calculation & Explanation Guide
Overview
This article walks through a real‑world true‑up modification example under ASC 842 using a NetLease operating lease. It explains why a true‑up may be required, what changes occur in the schedules, and walks through the resulting journal entry.
For a video walkthrough of a true up, see the NetLease - True Up Modification article.
When and Why a True‑Up Modification Is Used
During the life of a lease, a user may discover that the lease was either:
- Commenced with incorrect inputs (for example, payment amount, timing, or assumptions), or
- Incorrectly accounted for in one or more periods after commencement.
These issues can result in inaccurate balance sheet and income statement impacts recorded to date.
In NetLease, there are multiple ways to correct these types of errors. One option is to reverse historical activity back to the original commencement date (or another applicable period) using the Time Machine. However, in many cases, users prefer not to reopen or restate historical periods.
In these situations, a true-up modification can be used instead.
A true-up modification allows the user to correct the life-to-date accounting impact of a lease using point-in-time information, without reversing or altering previously posted historical entries. Rather than restating prior periods, NetLease posts a single modification journal entry in the current period that “trues up” the lease balances to what they should have been as of the beginning of the current period if the correct information had been used from the start.
A true-up modification can be used to correct the following types of lease accounting issues:
- Incorrect lease payment amounts or timing
- Updates to lease term, end date, or discount rate
- Errors related to prepaid rent, initial direct costs, or lease incentives
- General ledger balances impacted by an incorrect lease setup
- Non-lease payment amounts, such as CAM, taxes, insurance, or other non-lease components
From an accounting perspective, a true-up modification works by applying the correction prospectively. NetLease posts a single journal entry in the current period to adjust lease balances to their correct amounts, while leaving all historical schedules and journal entries unchanged and fully auditable. A dedicated true-up schedule line is created and directly linked to the true-up journal entry, ensuring clear traceability. Any differences between recorded balances and corrected balances are posted to the appropriate lease accounts.
A true-up modification is generally the preferred approach when an error is identified after lease commencement, prior periods must remain closed, and the objective is to align current and future accounting with corrected lease data—without restating historical activity.
Lease True-Up Example
Payment Schedule Prior to True up
Why a true‑up was required
After lease commencement, it was identified that the payment schedule had been entered incorrectly. The lease was initially set up with a flat $5,000 monthly payment from May 2025 through December 2025, when the actual terms required $5,000 in month one and $5,500 in subsequent months until January 2027.
By the time the issue was identified in August 2025, several periods had already been posted. Rather than reversing activity back to commencement, a true-up modification was used to correct the life-to-date accounting impact.
The true-up recalculates what the lease balances should have been as of the effective date using the correct payment terms and records a single adjustment in the current period. Historical schedule lines and journal entries remain unchanged, and a dedicated true-up schedule line is created and linked to the modification journal entry.
Before and After Schedule Comparison
Original schedule (before true‑up)
The original schedule reflects:
- $5,000 monthly payments to December 2025
- $5,500 starting January 2026
- Lease Liability Balance as of the month of the modification: $110,203.71
- ROU Asset Balance as of the month of the modification: $108,953.70
Corrected schedule (after true‑up)
The corrected schedule recalculates the lease using the proper payment amounts:
- $5,000 for month one
- $5,500 beginning month two through the end of 2026
As of the true‑up effective date, the corrected balances are:
- Lease Liability: $112,683.04
- ROU Asset: $111,995.54
Key takeaway
The difference between the original and corrected balances represents what should have been on the books versus what actually was, and this difference drives the true‑up journal entry.
Line‑by‑Line Breakdown of the True‑Up Journal Entry
Here is a screenshot of the journal entry made by NetLease and an explanation of each journal line.
Corrected CSV Schedule
Because the schedule on the lease record does not update historical lines, it can be helpful to review what the correct schedule would have been from commencement. A corrected schedule is available on the modification record.
Navigate to the modification record and open the Documents tab. The CSV file shows what the lease schedule would have looked like from the beginning if it had been set up correctly from commencement.
True-up Modification Tie Out
This Excel file is provided to help tie out the journal entry above by comparing the original lease schedule with the schedule that should have been created initially (the CSV downloaded from the modification record referenced above).
The worksheet shows how each debit and credit in the journal entry is derived from differences between the two schedules. When tying out your own true-up journals, you can use a similar comparison file to clearly trace where each amount originates and validate that the life-to-date balances are correctly stated.
NetLease True-Up Modification Tie Out
Go-Live Clearing Account and True-Ups
The Go-Live account may occasionally be hit with the journal entry depending on if the true up is run on a lease that contains a go-live entry. In this case, the debit and credits should match in the true up entry, and there should be no real impact to the go-live clearing account.
True-up Versions and Version Dates
What is a True-up Version?
A true-up version represents the point in time when corrected lease information takes effect. Rather than changing historical entries, NetLease creates a new lease version and recalculates the lease from that date forward.
Each true-up version answers:
“If the lease had been set up correctly starting on this date, what should the balances be today?”
What Is a Version Date?
The version date is the effective date of the true-up. It tells NetLease where recalculations begin.
- Periods before the version date remain unchanged
- Periods on and after the version date are recalculated using the corrected inputs
When to Use a New Version
Use the commencement period when the lease was incorrect from day one. Use Add Version when the lease was correct initially but needs to be corrected starting in a later period. Choose the version date that matches when the corrected information should begin to apply.
How Version Dates Impact True-Up Amounts
The version date determines how much of the lease is recalculated.
An earlier version date results in a larger true-up, while a later version date results in a smaller true-up. This is because the true-up represents the difference between what is currently recorded as of the version date and what should be recorded using the corrected lease details.