How can we help you?

The Journal Entry Report Line-by-Line

In this article, we will guide you through the calculation of initial journal entries for the Operating Lease classification under the Lessor model.

When the Journal Entry report is generated, it will display the recognition of rental income on a straight-line basis, reflected in the Lease Revenue/Income and Short-Term/Long-Term Deferred Rent GL accounts if the lease term exceeds 12 months. Monthly journal entries will follow a similar structure throughout the lease term.

Software Note: Leases transitioning to ASC 842 or from a different Software/Excel:

• If there are balances to transfer, Crunchafi Lease Accounting provides fields in Step 2: Lease Receipts to enter “Existing Balances under Previous Lease Guidance.” For more information on transition leases, visit “What is a Transition Lease?”

Journal Entry

Let's break these out further…

Cash/AR Clearing account

This reflects the lease payment received from the lessee (e.g., $1,500 per month). This amount will be posted to the Cash/AR Clearing Account and offset against Deferred Rent or Lease Revenue/Income, as applicable.

Lease revenue recognition

Monthly lease payments of $1,500 will be recognized as rental income on a straight-line per-day basis over the lease term, totaling $36,000 which equals $782.61. 

Please note: For leases starting or ending mid-month (e.g., February), the system adjusts calculations based on the actual number of days.

Example for partial months:

First Month: 1/20–1/31 = 22 days.

Last Month: 12/1–12/31 = 30 days.

Days in full months between = 660 days.

Total Days = 712.

Lease Receivables and Deferred Rent

Lease receivables will be recorded as they become due, and no lease receivable asset is recognized upfront in an Operating lease.

Short-Term Deferred Liability:

• This represents the portion of deferred rent to be recognized within the next 12 months.
• Deferred rent balances occur when straight-line rental income exceeds or falls short of the actual cash received in any given month. The short-term portion is reclassified from the long-term deferred rent liability.

Long-Term Deferred Rent:

• This represents the portion of deferred rent to be recognized beyond the next 12 months.
• The difference between the straight-line rental income and the cash receipts results in an adjustment to long-term deferred rent.

Initial Direct Costs: Any Initial Direct Costs incurred to execute the lease (e.g., legal fees or commissions) will be capitalized and amortized over the lease term on a straight-line basis.

Incentives Paid: If a Lease Incentive is paid to the lessee, it is recorded as a reduction of the ROU asset or deferred rent liability and amortized over the lease term.