How to Record Lease Improvements Expense in Accounting
How should Crestfield record the expense for the improvements made to the leased office space?
What journal entry would be needed to record the expense for the first year related to the improvements?
Answer:
The journal entry to record the expense for the improvements in the first year would be:
- Debit Lease Improvement Expense account $1,650
- Credit Accumulated Amortization account $1,650
When a company like Crestfield incurs costs to improve a leased office space, the expenses related to those improvements need to be recorded properly in the accounting books. The improvements are expected to yield benefits over a certain period of time, which means the costs should be recognized gradually as the benefits are realized.
To record the expense for the improvements in the first year, Crestfield should use a journal entry that reflects the cost of improvements and the corresponding reduction in the value of lease improvements in the balance sheet.
The amortization expense for the first year can be calculated by dividing the total cost of improvements by the total life of the improvements. In this case, the annual amortization expense would be $1,650.
The journal entry to record this expense would include a debit to Lease Improvement Expense account and a credit to Accumulated Amortization account. This entry will accurately reflect the expense related to the improvements made to the leased office space in the first year.