We currently prepay rent one month in advance. The auditors are saying that we should reclass the prepaid rent to the lease liability. We’ve always recorded it as prepaid rent. Now that I’m looking at ASC 842, it seems that the prepaid rent is part of the ROU asset?
Prepaid rent presentation
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With the implementation of ASC 842, prepaid rent and deferred rent went away. At the lease commencement date, any prepaid rent is added to the ROU asset. Subsequent to the lease commencement date, any prepaid rent will reduce the lease liability as a cash payment.