NetLease Reason Behind Clearing Accounts
Use Case: The purpose of this article is to explain the use of the different recommended clearing accounts in NetLease.
ROU Clearing Account
The ROU Clearing Account is used to record initial direct costs, prepaid lease payments, and lease incentives prior to commencement as well as accounts receivable upon termination.
Lease Initial Direct Costs - Values input here increase the initial balance of the ROU asset with the offset to the ROU Clearing Account. The first entry in the system would be the following and be made by the company as you record the costs:
Debit: ROU Clearing
Credit: Cash
This balance will be in the clearing account until the lease is commenced and the initial journal entry is run. The initial journal entry will reverse out the ROU Clearing in the following entry:
Debit: ROU Asset
Credit: ROU Clearing
Prepaid Lease Payment - Values input here increase the initial balance of the ROU asset with the offset to the ROU Clearing Account. The first entry in the system would be the following and be made by the company as you record the payment:
Debit: ROU Clearing
Credit: Cash
This balance will be in the clearing account until the lease is commenced and the initial journal entry is run. The initial journal entry will reverse out the ROU Clearing in the following entry:
Debit: ROU Asset
Credit: ROU Clearing
Lease Incentives - Values input here reduce the initial balance of the ROU asset with the offset to the ROU Clearing Account. The first entry in the system would be the following and be made by the company as you record the lease incentive:
Debit: Cash
Credit: ROU Clearing
This balance will be in the clearing account until the lease is commenced and the initial journal entry is ran. The initial journal entry will reverse out the ROU Clearing in the following entry:
Debit: ROU Clearing
Credit: ROU Asset
Lease Payable Clearing Account
The Lease Payable Clearing Account is used to record lease vendor bills and monthly payments from the subledger amortization entries. At the end of a period this account should net to zero.
Vendor Bill - when a vendor bill is created for a lease, the following journal entry should be recorded:
Debit: Lease Payable Clearing
Credit: Cash/Accounts Payable
Monthly Payment - The following entry will be booked as part of the monthly amortization process:
Debit: Lease Expense
Debit: Lease Liability
Credit: ROU Accumulated Amortization
Credit: Lease Payable Clearing
Transition Entry/Go-Live Clearing Account
The Transition Entry/Go-Live Clearing Account is used at the go-live date to get the correct balance sheet information presented in the NetSuite environment.
Automatic System Entry - when the Go-Live Entries are ran for the leases, the following journal entry will be recorded:
Debit: ROU Asset
Credit: ROU Asset Accumulated Amortization
Credit: Lease Liability
Credit/Debit: Transition Entry/Go-Live Clearing Account
Manual Entry - Depending on the previous accounting of the company, the following journal entry may include different accounts. The following entry is an example of what could be booked by the company to remove the lease information that has previously been recorded:
Debit: Lease Liability
Debit: ROU Asset Accumulated Amortization
Credit: ROU Asset
Credit/Debit: Transition Entry/Go-Live Clearing Account