Accounting for Lease Payments: Best Practices

 November 25, 2020

By  Guy Gray

Lease accounting standards are always changing. You have to keep track of tax rates, compliance standards, lease terms/amounts and more. How do you manage it all, especially when you’re trying to keep up with your other daily tasks? Having the right plan is a good place to start. As is utilizing technology like commercial real estate software.

If you’re looking to improve your accounting methods for lease payments, here are a few best practices to keep in mind.

Stay Up to Date On New Standards

First, make sure you’re apprised of ASC 842, IFRS 16 and other lease compliance standards, which have changed recently. As with most aspects of lease accounting, these are complex, but they have a direct impact on your lease payment accounting methods. It’s also a good idea to follow relevant CRE organizations and professionals so you know the latest standards that could be coming in the future.

Create a Plan

Accounting on the fly won’t cut it anymore in today’s CRE world of increasingly volatile standards. This is especially true if you’re dealing with multiple properties in a portfolio. Have a plan and consider adopting a lease payment checklist, which should include information like:

  • Lease vs non-lease payments
  • Initial/fixed/variable lease payments
  • Lease option declaration & payments
  • Treatment of month-to-month lease payments
  • Index rates for variable payments

Monitor, Record and Organize

Make sure you’re gathering and organizing all of the data related to your lease payments, both to maintain compliance and to use during tax season. Record any changes and document everything. It’s a good idea to have backups, too—preferably in the cloud.

Invest In Lease Management Software

Consider using CRE software with lease accounting features, which can save you time and increase accuracy. Lease management software like Quarem, for example, helps you organize all of your rent schedules in one spot, calculates the ROU and generates the amortization table by capturing all required metrics. This type of software can also help you easily generate the reports you’ll need to share with your accounting team. 

Get Support

Finally, don’t do it alone. You should have contacts in the tax and financial space to give you assistance on lease transactions. Additionally, if you invest in the right CRE software, you’ll be able to get feedback and advice on your lease payment organization methods and how you’re using the software.
Quarem can make your accounting for lease payments easier than ever. Request a demo of the tool today to see for yourself.

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About the author 

Guy Gray

Guy Gray serves as Chief Operating Officer overseeing our technology and client services teams. He is responsible for guiding Quarem application development, networking and security, as well as new client implementations.

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