Ask Joey ™ a Question

What is a lease inducement or lease incentive?

A lease incentive, which is also commonly referred to as a lease inducement, is when the landlord (lessor) offers a deal to the lessee to sign the lease. Common examples include free rent for 3, 6, or 12 months, or you could see reduced rent for the first year if the lease term is multiple years. The key thing to understand is that this results in a difference between cash rent and rent expense in the financial statements.

To calculate monthly rent expense, you must 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 you are 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.


You might also be interested in...

  • Are you looking for a CPA review course?

    Universal CPA Review is the only CPA review course that has explanation videos for every single multiple choice question. These videos focus on helping identify the big picture and developing a systematic approach to tackling the concept. Our content creators are masters of their craft. They know what it takes to pass the exam and […]

  • How is audit risk impacted with changes in the assessment of inherent risk, control risk, and detection risk?

    Audit risk is the combination of inherent risk, control risk, and detection risk. Remember, the audit team will “assess” inherent risk and control risk. Based on the assessment, then audit team will set detection risk, which ultimately impacts the amount of substantive procedures that must be performed. So in the visual below, you can see […]

  • Scores Came Out: I Just Got a 73% on Audit, Now What?

    Yesterday morning a student interested in trying Universal CPA Review reached out and expressed concern with the fact that they just took audit for the fourth time and scored a 73%.  Audit is a lot of candidate’s “kryptonite” and the reason is because it is sort of like skiing. Easy to learn, extremely hard to […]