LT liabilities in nonprofit
US QuickBooks Premier : 2009: Nonprofit
How do I show the long (and short) term liability for our leased equipment without recording it as an asset? We are not purchasing it.
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dGd_-yN1Sr34SKacfA8pyY
08/03/10 5:05pm PDT
Viewed by asker 02/27/12 3:42pm PST
Viewed by asker 02/27/12 3:42pm PST
3 Replies
08/04/10 5:15am PDT
If your question is in regards to GAAP financials, you may still be required to disclose the lease and assets if it qualifies as a capital lease. There is a 4-part test (you can Google it) which determines whether a lease qualifies as capital or operating. A quick summary of the test is 1) transfer of ownership at lease end, 2) bargain purchase option in the lease, 3) lease life is more than 75% of the useful life of the asset, or 4) the present value of the lease payments is more than 90% of the value of the asset.
If the lease really does qualify as operating, accounting rules would state that you record an expense monthly for the amount of the lease payment, and disclosure for Future Minimum Lease Payments (FMLP) be recorded in the financial statement footnotes (total by year for the next 5 years, and then aggregate for anything past 5 years).
This assumes that you don't have a rent-free holiday or significantly escalating lease payments over the life of the lease. If you do, there is a little bit more complicated accounting, which I'd be happy to explain if needed.
Dan Schmidt, CPA
08/04/10 12:48pm PDT
"Script errors on page" prevented me from entering a more detailed question. I had already determined that it is an operating lease (#1-no; #2-no, #3-maybe; #4-yes). GAAP rules re: operating leases may be convenient for large corps, but as a small non-profit with a changing BoD and staff, I want to show this liability in QB. We are mostly cash basis, but modified accrual seems appropriate to record liabilities. I just wasn't sure of the debit account since the equipment won't listed as an asset. Any suggestions?
08/10/10 6:04am PDT
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The following suggestion is not GAAP but it might work for you:
Set up a Current Liability Parent account: Equipment Lease. Set up two sub-accounts: Lease Payable and Remaining Lease Balance. The Remaining Lease Balance will be a contra-liability account. At the beginning of the lease, record a journal entry: credit Lease Payable and debit Remaining Lease Balance for the whole amount of the lease. On your balance sheet you will see the same amount as a positive and a negative number right under each other. So we are not reporting a true liability as the net amount of the two accounts will be zero, but the staff still will see how much is left of the lease.
At the time of the payment, split the Expense tab into 3 lines: put the amount of the payment to Equipment Rental Expense, then the same amount to Lease Payable, then the same amount as a negative number to Remaining Lease Balance. The payment's amount should be correct.
Réka
