Accounting Decisions & Account Usage
Overview
Prior to the installation and configuration of NetLeaseGo, there are key accounting decisions management should make with the assistance of the technical accounting team, including the following:
- Leasing Landscape and Key Accounting Decisions
- Applicable Standards (ASC 842, IFRS 16, or GASB 87)
- New Lease Standard Transition Date
- Transition Method
- Practical Expedients to Adopt
- What lease types to use to segregate your lease portfolio
- Present Value Calculation Decisions (Payment in Advance or in Arrears)
- The lease liability present value within NetLeaseGo can be set to calculate based on both in-advance payments (beginning of month) or in-arrear payments (end of month) for each lease. For example, Real Estate lease payments are frequently due at the beginning of the month (in advance) while equipment leases are paid at the end of the month (in arrears)
- Chart of Accounts Decisions
- When using NetLeaseGo, Netgain recommends having accounts that are used solely for the lease accounting standard, whether or not you plan to combine balances for financial statement reporting. Doing so will allow you to more easily validate that the amounts disclosed in your Lease Accounting footnotes and sourced from NetLeaseGo tie directly to your general ledger.
- The account listing below should be reviewed to determine which accounts will be used for lease accounting
NETLEASE STANDARD ACCOUNT USAGE
NetLeaseGo will refer to the following accounts in journal entry proposals.
| Account | Account Type | Description | Example Account # |
Account Mapping: All Lease Types | |||
ROU Asset | Other Asset | Long Term Asset account where the Right of Use (ROU) Asset will be recorded for each lease. | 1600 |
ROU Accumulated Amortization | Other Asset | Contra-account to Right of Use Asset that records reductions to ROU asset. This should often be set up as a subaccount of ROU Asset, similar to accumulated depreciation on fixed assets | 1601 |
ROU Clearing | Other Current Asset | This is the account NetLeaseGo uses to recognize initial direct costs, prepayments, and incentives prior to commencement, as well as amounts receivable upon termination of a lease. You may decide to book this account directly to where the originating transaction was coded on the source vendor bill payments. | 1200 |
| Lease Payable Clearing Account | Other Current Liability | This account is where we note expected payments of leases are posted, which are typically associated with a vendor bill. You may similar decide to record directly to the associated accounting where a vendor bill was posted. | 2110 |
Lease Liability | Other Current Liability | The Short-Term lease liability account. The lease liability reclass report shows the amounts to record as current liabilities versus short-term. Customers will typically record a reclass as a reversing entry. | 2150 |
Deferred Rent | Other Current Liability | Deferred rent account for Short-Term Leases (or Low-Value leases under IFRS) to record to deferred rent any differences between the monthly single expense over the entire lease period and the monthly payment for that month | 2120 |
Lease Liability (Long-term) | Long Term Liability | Long Term liability account. This is the primary lease account where all lease activity on the lease record is recorded, including the initial measurement and subsequent effective interest draw-down. | 2600 |
Lease Liability Contra (ST Reclass) | Long Term Liability | This is an optional account some customers use to segregate the monthly ST/LT reclass entry draw-down from long-term from all other standard lease activity. | 2610 |
Go-Live/Transition Entry Equity Account | Equity | This is the account where net balances of transition journal entries are to be recorded. If you use the practical expedients and use existing deferred rent balances as starting net balance, this account is typically unnecessary. If necessary, this is the transition amount that is recorded directly to Retained Earnings | 3030 |
ROU Impairment Charge Account | Other Expense | The loss account where impairment charges for ROU impairments are to be recorded | 8050 |
| Loss (Gain) on Lease Termination | Other Expense | The gain/loss account where the net impacts of lease changes are recorded, including from full or partial terminations (scope reductions) | 8045 |
| Account Mapping: Operating (US GAAP & Short Term/Low Value) | |||
Lease Expense Account (Operating) | Expense | The expense account that operating leases will book to as a single expense. For all Operating leases under US GAAP, as well as all Short-Term leases (including Low Value under IFRS) | 6200 |
Deferred Rent | Other Current Liability | Deferred rent account to record to deferred rent any differences between the monthly single expense over the entire lease period and the monthly payment for that month For all Short-Term leases (including Low Value under IFRS) | 2120 |
| Account Mapping: Financing Leases (All Accounting Standards) | |||
ROU Amortization Expense | Expense | Amortization Account where periodic amortization of the ROU asset will be recorded For Financing leases under US GAAP or all IFRS leases | 6065 |
Interest Expense | Expense | Expense account to record interest charges for lease liability accretion | 6110 |
| Account Mapping: Operating Sublease Accounts | |||
| Sublease Income Account | Income (Revenue) | Revenue account where sublease revenue is recorded for operating subleases | 4001 |
| Sublease Accrued Rent Receivable/Deposit Liability | Other Current Asset/Liability | Account to capture any differences between sublease income on a straight-line basis and expected payments/billings | 1510 |
Chart of Account Updates:
- To make updates to your NetSuite chart of accounts, navigate to Setup > Accounting > Chart of Accounts