How to calculate straight-line rent expense?
If a company signs a 5-year lease, cash rent that is paid to the landlord often fluctuates each year. Under U.S. GAAP, rent in a company’s financial statements should be recorded on a straight-line basis.
To calculate monthly rent expense on a straight-line basis, you must first calculate the total cash paid for rent over the entire lease life and then divide by the number of months (i.e. 4 years = 48 months).
For example, if the landlord charged $3,000 per month in Year 1, $4,500 in year 2, and then $6,000 in years 3 and 4, your monthly rent expense under U.S. GAAP would end up being $4,875.
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