Accounting Leases

After updating a Lease, selecting Summarize Changes will return the associated Accounting Lease to Needs Review status. This notifies the Accounting team that changes have been made by the Real Estate team and provides an opportunity to review and update the Accounting Lease as needed. Accounting Leases with a status of Needs Review are excluded from reports and will not be included in automated journal entries until the approval process is completed again.

Accounting Leases vs. Snapshots

An Accounting Lease represents a lease that you would like to measure and for which you would like to create an amortization schedule and journal entries. Snapshots can be considered versions of the lease over time. An accounting lease can include multiple snapshots. Example:

Accounting Lease
- Snapshot 1: New Lease
- Snapshot 2: Modification
- Snapshot 3: Modification
- Snapshot 4: Early Termination

How do I create an Accounting Lease?

There are two methods to create a new Accounting Lease:

Automated: When a new Lease is published, a draft Accounting Lease will be automatically created under Needs Review.
Manual: You may want to create multiple Accounting Leases per Lease.
- Navigate to the lease record under the Leases tab.
- Select Lease Actions, then Create Accounting Lease.

Best Practice Recommendation

A company leases multiple floors in a high-rise office building (floors 4, 5, 7, and 9). Over time, the company plans to consolidate its footprint by moving into contiguous floors as additional space becomes available. Specifically, the company expects to terminate floor 9 once it gains access to floors 3 and 6. The future use of floor 7 remains uncertain, as the company is evaluating whether to complete renovations or sublease the space. All floors are the same size, with rent priced at $5 per square foot annually. Practical considerations Real estate agreements are often dynamic, with evolving space needs, renovations, and potential sublease or termination decisions. As a result, lease accounting must be flexible and easy to update as changes occur. Recommended approach Because pricing is consistent on a per-square-foot basis, the contract includes observable standalone pricing. This allows for flexibility in how the lease is structured within the system:

Single lease approach: Record one Accounting Lease for the full agreement.
Componentized approach (recommended): Record one Accounting Lease per floor.

While both approaches result in the same total lease value, creating separate leases by floor provides greater flexibility. This structure simplifies future modifications, such as partial terminations or sublease arrangements.

Key takeaway: Structuring leases at a more granular level (e.g. by floor) can significantly reduce operational complexity when future changes are expected.

How do I create the first Snapshot of my Accounting Lease?

Once the accounting lease has been created, you will be guided through the accounting lease wizard to create an accounting lease snapshot.

Accounting Lease Snapshot Settings

Description: a description of the snapshot (e.g. “Initial version”).
Asset class: select the asset class for the lease.
Start date: the start date for the lease.
General ledger start date: the date that you would first like to add the lease to the GL.
End date: the end date for the lease.
Discount rate: the discount rate for the lease.
Fair market value (optional): the fair market value of the underlying asset.
Remaining economic life (optional): the remaining economic life of the underlying asset.

Transition Balances

Only for leases active on your accounting standard adoption date.

If the lease has any transition balances, enter them in this step.
For example, if the lease has an accrued/deferred rent balance as of your accounting standard adoption date, enter that in the Accrued rent balances field.
Click the Save and Continue button.

Expenses, Abatements and Allowances

In the Payments before effective date field, enter any expenses that were paid or received prior to the lease start date. These will not be included in the lease liability, but will instead be used to adjust the initial ROU asset.
The remainder of the expenses on this page are expenses that occur within the lease term.
Review the expenses and confirm that the amounts and timing are correct.
To update an expense, click on the Edit link next to the expense, update the expense amount or date, and click Save and Continue.
To delete an expense schedule, click on the Edit link next to that schedule, scroll to the bottom of the page, and click the Delete Expense Schedule button.
Once the expenses have been confirmed, click the Save and Continue button.

Lease Classification

Go through each of the classification questions and select whether the lease meets that criteria.
As you answer the classification questions, the system will recommend a classification based on your responses.
At the bottom of the page, select the classification that you would like to apply to the lease.
Click the Save and Continue button.

Summary

The summary page will summarize everything that you’ve entered for the accounting lease so far.
Once all the accounting lease data is confirmed, click the Create Snapshot button to create your accounting lease snapshot.

How do I submit my Accounting Lease for review?

To submit the Accounting Lease for Review and Approval:

Navigate to the Needs Review section of Accounting.
Claim the Accounting Lease.
In the Accounting Lease, select Lease Actions, then Submit for approval.

The Accounting Lease will now be found under the Reviewed tab. To Approve the Accounting Lease:

Navigate to the Reviewed section of Accounting.
In the Accounting Lease, select Lease Actions, then Approve Lease.

The Accounting Lease will now be found under the Approved tab.

Only Approved Accounting Leases are considered for automated Journal Entries.

How do I edit an Accounting Lease?

In order to edit an Accounting Lease, the lease must be:

In Needs Review status (in the Accounting Lease, go to Lease Actions and select Move to Needs Review).
Not included in any historical reporting periods (the Accounting Lease must be new this period).

To edit an accounting lease that meets those conditions:

Navigate to the Summary tab of the lease.
Scroll down to the Lease Timeline section.
Select the Edit button next to the most recent accounting lease snapshot.

If a lease has been approved and included in any historical reporting periods, you will have to account for the update by either:

Creating a lease modification, or
Deleting the accounting lease and creating a new accounting lease.

How do I delete a Snapshot but not the whole Accounting Lease?

Move the Accounting Lease to Needs Review (Lease Actions > Move to Needs Review).
In the Accounting Lease, select Lease Actions, then Delete Current Snapshot.

This will delete the current Snapshot but not delete the whole Accounting Lease.

How do I delete the Accounting Lease?

Once you delete all Snapshots from an Accounting Lease, you will be redirected to the initial set up wizard with an option to Delete the Accounting Lease.

How do I rename an Accounting Lease?

In order to rename an Accounting Lease, the Accounting Lease must be in Needs Review. You cannot rename an Approved or Reviewed Accounting Lease.

Navigate to the Accounting Lease under Needs Review that you would like to rename.
Click on the Settings tab.
In the Accounting lease name field, enter the new name for the accounting lease.
Click on the Save Accounting Lease Settings button below.

The Accounting Lease can now be sent for Review and Approval with the new name.

We have signed a new lease agreement — how do I account for the modification?

Once an accounting lease has been created and approved, you would account for amendments, extensions, and renewals by creating an accounting lease modification.

Navigate to the accounting lease that you would like to modify.
Click on the Lease actions dropdown in the top right corner of the lease page and select Create Modification.
On the Create Modification page, select Update existing accounting lease, and click the Create Modification button.
You will then be guided through the same accounting lease wizard that you used to create the initial version of the accounting lease to create the accounting lease modification.

Accounting lease modifications

On the Accounting Lease Snapshot Settings page, enter the modification effective date rather than the accounting lease start date.
The general ledger start date would represent the date that you would first like to add the modification to the GL (the effective date and the general ledger start date are usually the same date).
The end date would represent the new end date for the lease.
The discount rate may need to be updated.
The Expenses, Abatements and Allowances should be updated to include the current payment obligations that are defined in the amendment, extension, or renewal.

In the Accounting Lease, you will see under the Lease Timeline the original Snapshot (“New lease”) and any new Snapshots post-recognition (e.g. “Lease Modification”). You can run an Amortization Schedule for all Snapshots within the Accounting Lease.

How are Tenant Improvement Allowances (TIA) accounted for?

Tenant improvement allowances (TIAs) are generally treated as lease incentives under ASC 842 when they are payments made to or on behalf of the lessee for improvements the lessee controls or owns. Incentives reduce the right-of-use asset, but their specific accounting treatment depends on when the incentive payment is received.

TIAs received before lease commencement

TIAs received before lease commencement are recorded as a liability.

Account	Debit	Credit
Lease Incentives		10,000
Cash	10,000

On lease commencement, the incentive liability is reclassified to right-of-use asset. This clears the incentives balance and reduces the right-of-use asset by the TIA amount.

Account	Debit	Credit
Lease Incentives	10,000
Right-of-Use Asset		10,000

TIAs received after lease commencement

TIAs paid after lease commencement are treated as an incentive that reduces lease payments. From an accounting perspective, the incentive is essentially a negative lease payment. The best way to explain how to account for incentives received during the lease term is with a concrete example.

Term: 5 years
Annual Rent: 5,000 (paid in advance)
TI Allowance: 6,000 (paid at the start of year two)
Discount Rate: 5%

As demonstrated by an amortization schedule reflecting these inputs, the total lease payments over the lease term is equal to the rent payments less the TIA payment in year two, or 19,000 = (5,000 × 5) − 6,000. The rest of the amortization schedule behaves just like a typical operating lease.

TIAs with an unknown date

The lease accounting for both pre-commencement and post-commencement incentives is straightforward, but reality isn’t always so simple. TIAs are often structured so that the lessee is reimbursed for their spending on improvements, up to some maximum amount. In those cases the precise amount and timing of the incentive aren’t known at lease commencement. How do you handle the accounting of a lease incentive when you don’t know exactly when you’ll receive the allowance? ASC 842 does not directly address contingent reimbursement-style TIAs, so judgment is required. Generally, it’s unlikely a lessee would forgo the incentive. Because of this, lessees could treat TIAs as an “in substance fixed payment,” and include their best estimate of the incentive in the initial lease measurement. After lease commencement, once the actual amount and payment timing of the incentive is known, the lessee should remeasure the lease liability and right-of-use asset to reflect the true incentive, using the same discount rate used at lease commencement. For a more rigorous explanation, review this detailed example in PwC’s lease accounting guide.

How do I create a fully prepaid accounting lease?

Fully prepaid prior to commencement

For leases that are fully prepaid before the accounting lease commencement date:

(Best practice) In the Lease, record the prepayment as an Individual Expense for Base Rent, using the actual payment date and amount. Fully prepaid leases should not be structured using an Expense Schedule.
In the Accounting Lease setup, record the prepaid amount in the Additional Balances – Prepaid Rent field. All other expenses and expense schedules should remain blank.

Fully prepaid after commencement

For leases that become fully prepaid after the accounting lease has commenced: At commencement, the Lease may include an Expense Schedule that flows into the Accounting Lease setup. If a new agreement is executed to fully prepay the remaining lease term, the Expense Schedule should be updated to reflect that future periodic payments will cease. Record the prepayment as an Individual Expense, using the date and amount of the cash payment that settles the remaining lease obligation. Lease setup steps:

Navigate to the Finances tab and select Expense Schedules.
Select Edit for the applicable schedule.
Choose Add Adjustment to insert a new row or modify existing rows so that all remaining scheduled payments are reduced to zero.
Select Update Expense Schedule to save changes.

Accounting Lease setup:

The updated Expense Schedule should reflect the revised timing and amount of payments following commencement.
The Individual Expense should capture the prepaid rent amount on the date the cash payment is made, representing prepayment of the remaining lease term.

Key principles:

Prepayments increase the ROU asset.
Lease liability is based on unpaid lease payments only.
No lease liability is recorded for amounts already paid.

Getting started

Lease Administration

Accounting

Payments

Reports

Settings & General

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