Theory and Practice
✔ Applies to US GAAP (ASC 842) Finance Leases
✘ Does not apply to US GAAP (ASC 842) Operating Leases
✔ Applies to IFRS (IFRS 16)
✔ Applies to UK GAAP (FRS 102)
The ROU asset is depreciated (typically straight-line over the lease term, unless another systematic basis is more appropriate) and interest expense is recognized on the outstanding lease liability using the effective interest rate.
| Account | Debit | Credit |
|---|---|---|
| Interest Expense | $658.08 | |
| Lease Liability | $658.08 | |
| Depreciation Expense | $4,750.50 | |
| ROU Asset (or Accumulated Depreciation on ROU Asset) | $4,750.50 | |
|
Accrue interest on the lease liability. This interest cost is recognized in the Income Statement and increases the carrying amount of the lease liability. Record depreciation of ROU asset over the lease term (straight-line over 4 years in this example). The lessee’s Income Statement now shows depreciation expense instead of rent for capitalized leases. |
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Doing it in Sage Intacct Lease Accounting
Once a lease has been placed in service, GL entries can be generated automatically or as manually initiated by a user. Read more on this topic here.
Two journal entries are created. One for the Interest expense and a second for the Depreciation expense.
