NetLease Related Party Leases
Overview
Under ASC 842-10-55-12, leases between between related parties, also known as intercompany leases, should be classified and accounted for the same as leases between unrelated parties. Therefore, a company who is both the lessor and the lessee in an agreement must account for the lease as both sides of the arrangement.
NetLease accounts for lessor operating leases. If a lessor lease is a sales-type or direct financing classification, NetLessor is necessary to do the lessor accounting
Related party accounting depends on the specific facts and nature of the relationships involved. The recommendations below may apply in certain situations but not in others. Always consult with your auditors to confirm the appropriate treatment.
Prerequisites
Lease Types must be configured with operating sublease accounts listed for the lessor accounting to be correct, see the Sublease Overview article for more information. If desired to net revenue and expenses, confirm that the sublease income account matches to the lease expense account.
Step by Step Process
- Create the lessee lease by following the instructions in the NetLease - Create a New Lease Record article
- Enter the Intercompany Vendor in the Vendor field
- The lease amortization entries will match non-related party entries, with the expense being booked to the lease expense account
- Enter the Intercompany Vendor in the Vendor field
- Create the lessor lease by following the instructions in the NetLease - Create a New Lease Record article
- Select a Lease Classification of "Operating - Sublease"
- Enter the Intercompany Customer in the Customer field
- The lease amortization entries will back out the debit to the lease payable clearing account and credit to the lease expense account
- Generate the schedules and commence the leases similar to non-related party leases