6 Lease Accounting Errors You’re Probably Making (And How to Fix Them) – PART 2

errors part 2

This is the second of a two-part series: 6 Lease Accounting Errors You’re Probably Making (And How to Fix Them). Our previous post addressed the first 3 common accounting errors we have found after reviewing thousands of leases. To summarize, those common errors were:

1) Errors in accounting for tenant improvement allowances (TIAs)

2) Errors in accounting for TIAs when a lease is renewed or modified

3) Errors in accounting for prior deferred rent when a lease is renewed or modified

In today’s article, we will show you the next 3 lease accounting errors (errors 4 to 6) we have found after our evaluation of numerous leases.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

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6 Lease Accounting Errors You’re Probably Making (And How to Fix Them).

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To err is human. To forgive is against company policy. Our last blog addressed how to Account for Lease Amendments that Expand the Leased Premises. In today’s article, we will explain the 6 common lease accounting errors we have found after reviewing thousands of leases.

One thing that makes LeaseQuery different from other lease management software providers is that we are not just real estate professionals; we are also accountants. Why is that important? Well, when you start using our software, we perform two tests on your leases to ensure the following:

1st Test: We make sure that you are making the correct payments based on the lease documents and,

2nd Test: We make sure that your existing leases are complying with GAAP.

While most of the existing lease software out there can perform the first test, the second assessment is more important because even though the correct payments are being made, the entries being recorded may be incorrect. Only accountants can make that determination.  In today’s column, we will show you the top 6 accounting errors we have found after our evaluation of numerous leases.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

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How to Account for Lease Amendments that Expand the Leased Premises

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In a prior post, we explained how to account for leases when the tenant MUST expand the premises under the terms of the initial lease. In this blog post, we will explain how to account for a lease when the tenant expands a lease, but that expansion was NOT required under the terms of the initial lease. That is, how to account for a lease when the tenant leases a space, decides it needs to expand, and then signs an amendment to the initial lease expanding the leased space.  Once again, the difference between this scenario and the prior post we wrote is that in the prior scenario, the tenant was obligated to take the additional space under the initial lease. Under this scenario, the tenant decided to expand the leased premises but it had no obligation to do so.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

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Lease Accounting when Tenant Must Return the Asset to its Initial Condition.

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Have you ever entered into an operating lease for a building, constructed leasehold improvements, and determined based on the provisions of the lease that you are legally obligated to remove the leasehold improvements at the end of the lease? Did you account for this transaction correctly under GAAP? Are you willing to bet on it? Better yet, are you willing to bet your job on it?

Our last blog addressed how to account for leases where the tenant has the option to terminate the lease at will (without penalty).  In this blog post we will explain how to account for a lease when the tenant/lessee has an obligation to return the asset back to its condition at the inception of the lease. We will begin by explaining the accounting treatment under GAAP, followed by a comprehensive example using actual numbers.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

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Accounting for Leases with Termination Options

Notice of Termination

In our last blog, we explained how to account for leases where the tenant must take additional property (or expand) in the future. Today’s blog addresses accounting for leases which include a termination at will option. It was inspired by the following question we received:

We have a lease with a landlord with escalated lease payments. However, the lease also comes with a termination right, which states “Tenant shall have the one-time right to terminate the lease at certain date”. Since there is no termination penalty and we have not installed any leasehold improvements, we assume we will terminate the lease at will. Since between the commencement date and termination date, there is no rent escalation, no straight-line schedule was prepared. Now the deadline to submit the termination notice has passed and we decided not to terminate. Does that mean we should start to prepare the straight-line schedule? Since the commencement date has been long passed, I am guessing we would have to true up the straight-line receivable to what it should be as of today assuming there is no termination right at all. Could you shed some light on this situation? Please let me know if I didn’t make it clear for you to understand. Thanks a whole bunch!

This is an excellent question, and as is always the case with excellent questions, there are significant accounting implications here. To address this, we will discuss the underlying accounting first, then, as we always do with our blogs, we will follow up with a comprehensive example.

To continue reading, click here.

About LeaseQuery:  LeaseQuery is lease management software that helps companies manage their leases.  Rather than relying on excel spreadsheets, our clients use LeaseQuery to get alerts for critical dates (renewals, etc), calculate the straight-line amortization of rent and TI allowances per GAAP, provide the required monthly journal entries (for both capital and operating leases) and provide the commitment disclosure reports required in the notes and the MD&A.  Contact us here.

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