Discussion:Amortizing free rent
From TaxAlmanac
Discussion Forum Index --> Accounting Questions --> Amortizing free rent
Numberless (talk|edits) said: | 31 October 2006 |
| Hello everyone!
I'm new here and thrilled to see there is a site out there that can possibly help. I just joined a company and helping with the bookkeeping, while I go to school for accounting. I'm still new to the accounting field and am learning that it can be confusing. Today, I looked at the company's financial and see something wierd, or at least it's foreign to me. The company received the first three months rent free on their three lease. The three lease will be up at the end of this year. The accountant amortized the three months over the three year occupancy. She came up with an average monthly rent and that amount is being expensed for the three years. So when I'm looking at the financials, I see the same dollar amount for rent expense. My questions is, shouldn't the liability account be zeroing out at the end of the year? There is a debit amount sitting in there and I see it increasing each month. Won't that have to be expensed? Please help, I'm so confused. Thanks | |
| November 1, 2006 | |
| The accounting is correct is far as the expense side. When you have a lease with bargain rent, you're supposed to straight-line it and expense the same amount each month. So, in the first several months you would have a debit in the expense account and a credit in the liability account. As the company starts paying the rent, the balance in the liabilty account will go down each month, assuming regular monthly payments are made. In the end the balance in the liability account should be zero and total rent expense over the three years should be the total expense per the lease, again assuming all payments have been made.
| |
