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

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

  1. Create the lessee lease by following the instructions in the NetLease - Create a New Lease Record article
    1. Enter the Intercompany Vendor in the Vendor field
    2. The lease amortization entries will match non-related party entries, with the expense being booked to the lease expense account
  2. Create the lessor lease by following the instructions in the  NetLease - Create a New Lease Record article
    1. Select a Lease Classification of "Operating - Sublease"
    2. Enter the Intercompany Customer in the Customer field
    3. The lease amortization entries will back out the debit to the lease payable clearing account and credit to the lease expense account
  3. Generate the schedules and commence the leases similar to non-related party leases

Was this article helpful?