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)
A tenant receives a cash leasehold improvement allowance of $10,000 from the landlord at lease start. Journal entry at commencement:
| Account | Debit | Credit |
|---|---|---|
| Cash | $10,000 | |
| ROU Asset | $10,000 | |
| Lessor-paid incentive reduces the cost of the ROU Asset. The lessee receives $10k cash (debit), and credits the ROU Asset by $10k, effectively lowering the asset. The lease liability is unaffected by incentives (it reflects gross rent due). | ||
Doing it in Sage Intacct Lease Accounting
If this happens with the initial recognition of the lease,
Enter the $10k as a positive value in the Lease Liability to ROU Asset adjustment on the Lease info tab;
When the initial recognition entry is posted to the GL, the journal will have 3 lines: CR Lease Liability, DR ROU Asset and DR the LL Adjustment Account. This latter account will receive the $10k as a debit; and
Reclass the $10k entry to Cash by either editing the journal created by Lease Accounting or entering an additional Journal Entry.
If this occurs after the lease has been placed in service,
Take the Lease out of Service;
Edit the Lease and increase the ease Liability to ROU Asset adjustment on the Lease info tab by $10k;
Revalue the Lease;
Place the Lease back in Service - which will post an entry to the GL, CR ROU Asset and DR the LL Adjustment Account. This latter account will receive the $10k as a debit; and
Reclass the $10k entry to Cash by either editing the journal created by Lease Accounting or entering an additional Journal Entry.