Overview:
When generating the Journal Report, you can choose whether to credit the ROU Asset directly or credit Accumulated Depreciation as the ROU Asset is amortized.
Watch the video below to learn how to select either Credit ROU Asset or Credit Accumulated Depreciation
Video Length: 2 minutes
Alternatively, you can follow the steps below.
You can set the Amortization Expense Posting Method at either the company level or the individual agreement level.
Company Level
Agreement Level
On the Company Level
*Note: When you use function on Company Level, Cradle might have a long process time depending on the volume of leases in your account.
Step 1: Navigate to Companies in the sidebar (see Arrow 1), then select the company you want to configure (see Arrow 2).
Step 2: Click Settings.
Step 3: In the Amortization Expense Posting Method dropdown, select one of the following options, depending on your preferred journal entry format. Then click Save.
Available Posting Methods and Their Accounting Impact:
Post Amortization Against ROU Asset
Journal Entry:
Dr. Amortization Expense
Cr. ROU Asset
Post Amortization Against Accumulated Depreciation Account
Journal Entry:
Dr. Amortization Expense
Cr. Accumulated Depreciation
This option applies to both operating leases and finance leases.
Post Amortization Against Accumulated Depreciation Account (Finance Lease Only)
Journal Entry:
Dr. Amortization Expense
Cr. Accumulated Depreciation
This method applies only to finance leases.
On the Agreement Level
Step 1: Navigate to Agreements in the sidebar (see Arrow 1), then select the agreement you want to configure (see Arrow 2).
Step 2: Navigate to Initial Recognition
Step 3: Scroll down to the Right of Use Asset section.
Click on the Amortization Expense Posting Method dropdown and select one of the following options:
Available Posting Methods and Their Accounting Impact:
Post Amortization Against ROU Asset
Journal Entry:
Dr. Amortization Expense
Cr. ROU Asset
Post Amortization Against Accumulated Depreciation Account
Journal Entry:
Dr. Amortization Expense
Cr. Accumulated Depreciation
Use Company Setting
Applies the default method set at the company level.
FAQs:
What is the difference between posting against ROU Asset and Accumulated Depreciation?
Posting against the ROU Asset directly reduces the ROU Asset balance each period. This means the asset gradually decreases until it reaches zero by the end of the lease term.
Posting against Accumulated Depreciation records the depreciation in a separate account, similar to how traditional fixed assets are treated. The ROU Asset remains at its original value on the balance sheet, and the accumulated depreciation account increases over time, eventually offsetting the full asset value.
Further Reading: