NetLease - Automated 840 To 842 Transition
Overview
For US GAAP customers who implement NetLease prior to the adoption of ASC 842, NetLease supports the accounting for leases under ASC 840, where lease expense is straight lined and any differences between expense and payments are recorded against deferred rent.
KEY ASSUMPTIONS
Using NetLease’s automated approach to ASC 842 conversion, it is assumed that customers will use the practical expedients outlined in ASC 842 (e.g., hindsight) such that the ending balance of deferred rent just prior to conversion can be used as the net balance between the Lease Liability and ROU Asset at adoption of ASC 842.
STEP BY STEP PROCESS – INITIAL SETUP
- On initial setup, a lease is set to operating and the checkbox 840 Lease; To Convert at Adoption is checked (Accounting > Accounting Overrides > 840 Lease; To Convert at Adoption)
- With that option selected, the lease schedule is generated and populated on the 840 Schedule tab
STEP BY STEP PROCESS – 840 TO 842 CONVERSION
- Prior to adoption, all journal entries should be run through the period just prior to adoption
- Before any NetLease transactions are recorded in the month of transition to the new standard, navigated to the 842 adoption suitelet: NetLease > NetLease Setup > Run 840 to 842 Conversion
- Select all 840 leases for which you would like to trigger the transition (typically Mark All)
- Select Convert and the system will take you to a status screen
- Refresh the status screen until the status has progressed to Complete and the converted leases are listed
- When you navigate back to the lease record, you will see the modification line establishing the opening balance for the period and the future periods updated with the ROU and Lease Liability draw-down.
- The associated journal entry establishes the beginning ROU Asset and Liability, with the net balance writing off the existing Deferred Rent Balance