NetLessor Sales Type Journal Entries Overview

Lease Journal Entries

Unless stated otherwise in the specific example, all entries below are based on a lease with the following characteristics:

  • Commencement Date = 1/1/2023
  • Go-Live Date = 1/1/2023
  • Economic Life of Leased Asset = 72 months
  • Lease Term = 72 months
  • Initial Payment = $5,000
  • Leased Asset Fair Value = $500,000
  • Leased Asset Carrying Cost = $500,000
  • Total Residual Value Estimate = $215,000
  • Refundable Deposit = $5,000

Go-Live Entry

Additional Information:

  • Commencement Date = 1/1/2022

Offsetting Manual Entry:


DebitCredit
Netgain Go-Live Clearing460,385.57
Net Investment in Lease
460,385.57

Initial Balance Entry

Additional Information:

  • Leased Asset Carrying Cost: $420,000

Additional Information:

  • Initial Direct Costs = $5,000

Note:
When the leased asset fair value DOES NOT EQUAL the leased asset carrying cost, the initial direct costs are expensed as incurred and are not amortized over the life of the lease. In this case, the initial balance entry will look the same regardless whether there are initial direct costs or not.

On the other hand, when the leased asset fair value EQUALS the leased asset carrying cost, the initial direct costs are amortized over the life of the lease and are reflected in the initial balance entries.

Additional Information:
  • Lease Prepayments = $5,000

Monthly Amortization Entry

Additional Information:

  • Leased Asset Carrying Cost: $420,000

Additional Information:

  • Initial Direct Costs = $5,000

Note:
When the leased asset fair value DOES NOT EQUAL the leased asset carrying cost, the amortization journal entries will not be impacted by initial direct costs. The entry would also be the same in the case that the leased asset fair value DOES EQUAL the leased asset carrying cost AND there are no initial direct costs.

That being said, when the leased asset fair value EQUALS the leased asset carrying cost, any initial direct costs will be amortized over the life of the lease and will be reflected in the amortization entries.

Additional Information:

  • Lease Prepayments = $5,000

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