Recording Right of Use and Lease Liability: Best Practices

 September 21, 2022

By  Guy Gray

To “throw a wrench into something” is to cause a problem in a process that is otherwise running smoothly. There are minor inconveniences and reasons to adapt in commercial real estate, of course, but something that can disrupt both long-term and daily CRE activities, our proverbial “wrench,” is a lease accounting standards update from ASC 842, IFRS 16 or GASB 87

This is especially true when it comes to recording right of use and lease liabilities. Calculating lease payments and costs can make your head spin if you’re juggling multiple commercial real estate properties. Let’s discuss the best ways to record these and how CRE software can help.

Right-of-Use Asset Recording Best Practices

Recording right-of-use assets differs slightly depending on the lease accounting standards you’re following. While lease accounting for certain types of leases (e.g. financial) is largely unchanged with ASC 842, there are still a few things to keep in mind with your lease-recording processes for all standards. Make sure you:

  • Know the differences between ASC 842, IFRS 16 and GASB 87.
  • Apply the lease accounting standards to the type of lease you’re recording.
  • Always start with the initial lease liability amount, followed by payments and other info.
  • Account for outstanding/cumulative rent amounts, direct costs and lease incentives.
  • Make sure everything is recorded on the balance sheet properly.

One of the biggest factors to remember is that you differentiate between actual assets and right-of-use assets. Lease liabilities, on the other hand, have a slightly different approach.

Lease Liability Recording Best Practices

The latest lease accounting standards also require lease liabilities to be recorded on the balance sheet. This is mainly to help determine elements like payments and terms for the lease. Here are some best practices to consider when it comes to recording lease liabilities:

  • Account for all versions of lease payments—past, present and future.
  • Gather all information needed ahead of time so you aren’t backtracking.
  • Double-check your lease liability amounts before they’re recorded on the balance sheet.
  • Stay updated about lease liability requirements for all accounting standards.

There are other factors involved that may affect lease liabilities (e.g. initial direct costs), but if you’re organized in your recording processes, it will help them be as accurate as possible.

How Commercial Real Estate Software Can Help

CRE software solutions like Quarem take the guesswork out of lease liability and right-of-use asset accounting. Quarem has specific features that help you maintain compliance with ASC 842, IFRS 16 and other lease accounting standards. Best of all, it organizes and automates your data—as well as lets you customize dashboards—so you can quickly find the information you need to keep your balance sheets in tip-top shape.

If you’d like to see how Quarem helps with recording right of use assets, lease liabilities and more, request a demo today.

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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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