Amortization
Amortization is the process of paying off a debt over time through regularly scheduled payments. Lease payments are amortized for the likely term of the lease by using the straight-line method. The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) require the lessee to determine the present value of the estimated likely lease payments.
There are many methods used in depreciating assets or leases. Generally, companies use the straight-line method for book purposes or financial purposes. The FASB-IASB requires rental expenses to be “recognized on a straight-line basis.” This means that the same amount of expense must be recognized each month, regardless of the actual rent payment during the month.
The Accounting tab can be used to amortize over the shorter of (a) the lease term or (b) the economic life of the leased property. This amortization can be reflected in the profit and loss (P&L) as depreciation expense. This tab can also amortize the obligation to pay rent liability with the debt amortization method, and reflect that amortization in the P&L as interest expense.
- Sets the Amortization Recalc (Recalculation) Needed field to true.
- Triggers a background process to generate or recalculate the amortization schedule for each lease.
- Click the Activate action on a real estate lease or asset lease to generate an amortization schedule.
- Click the Review Assumptions action to review the likely term and assumptions on a real estate lease or asset lease, and generate an amortization schedule. The lease can be in Draft, Revision In Progress, or Active status.