NetLease - Modifying a Lease in a Closed Period
Overview
When working with leases and you need to process a modification in a closed period, there are multiple options to ensure the correct treatment.
Option 1: Open the Periods
The Time Machine function allows you to rewind a lease record to a specific period, deleting all journal entries from that period onward and reverting the lease to its prior state. However, the system generally cannot modify or delete entries in your general ledger in closed periods, so the period must be open for this to take effect. By reopening periods, you will be able to update the lease record and general ledger without a manual adjustment and post the correct journal entries in each past period, rather than having everything post in the current period as in Option 3.
Option 2: True Up Modification
The True-Up Modification allows you to adjust a lease's accounting impacts to reflect what the balances should have been if the correct information had been input from the start. Instead of reversing historical transactions as the time machine does, it creates a single adjustment entry in the current period to "true-up" the life-to-date balances. This is a more simplified adjustment compared to the time machine and preserves historical data to ensure a clear audit trail.
Note: True-Ups must be completed within the current month and before the month-end amortization is ran.
Option 3: Enable Closed Period Selection
The last option is to adjust the NetLease settings to allow the Time Machine to alter closed periods to reverse incorrect entries. This method is more complex because it will require you to conduct a manual entry but will allow you to keep your accounting periods closed while modifying the lease. Follow the steps below to carry out this option.
Step 1: Enable Closed Period Selection
This feature allows users to process transactions or adjustments in accounting periods that are already closed. You can navigate to this by going to NetLease > NetLease Setup > System Setup. From here, scroll down to the System Settings section and enable the checkbox labeled Allow Closed Period Selection.
Step 2: Time Machine Lease
Time Machine the desired lease back to the month of the modification.
Note: Time Machine will unlink the entries from the amortization schedule, but will NOT delete the entries from the General Ledger. You will likely receive the warning message shown in the screenshot below indicating that you need to reverse the outstanding GL impact of the lease through a manual entry in NetSuite (outside of NetLease). Select the Outstanding G/L Impact Summary tab to see the amounts you will need to reverse.
Step 3: Manually Reverse Old Entries
Since the Time Machine will not affect the GL, you will need to manually post a journal entry to reverse the affects of previous journal entries within the months that are time machined. When running the Time Machine function in a closed period, you will receive a warning message with the Outstanding GL Impact Summary detailing the amounts you need to reverse.
Step 4: Configure NetSuite Accounting Preferences
In order to conduct a modification outside of the current period, you must configure your settings to allow you to do so. Navigate to accounting preferences by going to Setup > Accounting > Accounting Preferences. Under the General Ledger section, locate the following two settings:
1. Allow Transaction Date Outside of Posting Period
You can set this to Warn which will notify users when a transaction date falls outside the posting period but still allows it post or you can choose Allow, which will let the transaction post without warning.
2. Default Posting Period When Transaction Date in Closed Period
You can set this to either First Open Period or Current Period.
Step 5: Process the Modification
Now that the lease schedule and GL have been cleared of the previous entries, proceed with the lease modification to the appropriate lease.
Note: Since the periods of the modification are closed, the journal entry for the new modification and future amortization will post in the first open or current period.
Step 6: Verify the Final Outcome and Rerun Amortization
The amortization schedule will reflect the change as if it occurred in the desired historical period. The G/L will reflect the change as of the first open or current period. Once you have verified that the modification(s) have posted correctly, you can now rerun amortization entries for the previously time machined periods. These will post to the first open or current period.