NetLease - Reason Behind Clearing Accounts

Overview

This article explains the purpose and behavior of clearing accounts used in NetLease. Clearing accounts are temporary accounts that hold balances until a specific lease event occurs (such as lease commencement, payment processing, or go-live conversion). Their primary role is to ensure accurate timing of financial recognition and proper alignment between the subledger and general ledger.

Overview of Clearing Accounts

NetLease uses three key clearing accounts:

  • ROU Clearing Account – Pre-commencement activity such as initial direct costs, lease prepayments, or lease incentives
  • Lease Payable Clearing Account – Ongoing lease activity
  • Transition/Go-Live Clearing Account – Implementation and conversion

Each serves a distinct purpose in the lease lifecycle and should generally return to zero after its intended use.

ROU Clearing Account

Purpose

The ROU (Right-of-Use) Clearing Account temporarily holds balances related to lease setup before commencement. This ensures that costs and incentives are not recognized in the ROU asset until the lease officially begins.

All pre-commencement activity flows through ROU Clearing and is fully reversed at lease commencement, resulting in:

  • Proper ROU asset valuation
  • Zero balance in the clearing account

Lease Initial Direct Costs - Values input here increase the initial balance of the ROU asset with the offset to the ROU Clearing Account. The first entry in the system would be the following and be made by the company as you record the costs: 

  •   Debit: ROU Clearing
  •    Credit: Cash

This balance will be in the clearing account until the lease is commenced and the initial journal entry is run. The initial journal entry will reverse out the ROU Clearing in the following entry: 

  •    Debit: ROU Asset
  •    Credit: ROU Clearing

Prepaid Lease Payment - Values input here increase the initial balance of the ROU asset with the offset to the ROU Clearing Account. The first entry in the system would be the following and be made by the company as you record the payment: 

  •    Debit: ROU Clearing
  •    Credit: Cash

This balance will be in the clearing account until the lease is commenced and the initial journal entry is run. The initial journal entry will reverse out the ROU Clearing in the following entry: 

  •    Debit: ROU Asset
  •    Credit: ROU Clearing

Lease Incentives - Values input here reduce the initial balance of the ROU asset with the offset to the ROU Clearing Account. The first entry in the system would be the following and be made by the company as you record the lease incentive:

  •    Debit: Cash
  •    Credit: ROU Clearing

This balance will be in the clearing account until the lease is commenced and the initial journal entry is ran. The initial journal entry will reverse out the ROU Clearing in the following entry: 

  •    Debit: ROU Clearing
  •    Credit: ROU Asset


Lease Payable Clearing Account

Purpose

This account is used during the ongoing life of the lease to bridge activity between:

  • Vendor bills
  • Lease payments
  • System-generated amortization entries

It ensures that payment-related activity ties correctly to the lease subledger.

The Lease Payable Clearing Account should net to zero over time. Temporary balances may exist during timing differences (e.g., bill vs. payment vs. amortization)

Vendor Bill - When a vendor bill is created for a lease, the following journal entry should be recorded:

  •    Debit: Lease Payable Clearing 
  •    Credit: Cash/Accounts Payable

Monthly Payment - The following entry will be booked as part of the monthly amortization process:

  •    Debit: Lease Expense
  •    Debit: Lease Liability
  •    Credit: ROU Accumulated Amortization
  •    Credit: Lease Payable Clearing


Transition Entry/Go-Live Clearing Account

Purpose

This account is used during implementation (go-live) to align legacy lease balances with NetSuite.

It acts as a balancing account during:

  • Initial system-generated lease setup
  • Migration from legacy accounting

This account is temporary and implementation-specific. It should not carry ongoing balances after go-live stabilization.

Automatic System Entry - when the Go-Live Entries are ran for the leases, the following journal entry will be recorded:

  •   Debit: ROU Asset
  •    Credit: ROU Asset Accumulated Amortization
  •    Credit: Lease Liability
  •    Credit/Debit: Transition Entry/Go-Live Clearing Account

Manual Entry - Depending on the previous accounting of the company, the following journal entry may include different accounts. The following entry is an example of what could be booked by the company to remove the lease information that has previously been recorded:

  •    Debit: Lease Liability
  •    Debit: ROU Asset Accumulated Amortization
  •    Credit: ROU Asset
  •    Credit/Debit: Transition Entry/Go-Live Clearing Account
Was this article helpful?

Knowledge Center