What is Lease Close Process?
Definition
Lease Close Process is the set of accounting activities performed at the end of a reporting period to ensure all lease-related financial entries are accurately recorded and reconciled. These activities confirm that lease liabilities, right-of-use assets, and lease expenses are correctly reflected in financial statements in accordance with Lease Accounting Standard (ASC 842 / IFRS 16).
The lease close process forms part of the broader financial close cycle and ensures that lease data integrates properly with financial reporting areas such as the general ledger, asset management, and consolidated financial statements. Accurate lease closing helps organizations maintain reliable reporting and strong compliance with accounting standards.
Role of the Lease Close Process in Financial Reporting
Leases often represent long-term financial commitments that must be tracked and reported precisely each reporting period. The lease close process ensures that all lease-related accounting entries—such as depreciation of right-of-use assets and interest on lease liabilities—are properly recorded before financial statements are finalized.
This process also ensures alignment with other close cycles, including the Asset Close Process, Expense Close Process, and Revenue Close Process, allowing organizations to produce accurate financial reports across all operational areas.
Key Steps in the Lease Close Process
Finance teams follow a structured sequence of tasks during the lease close to ensure all lease accounting entries are complete and reconciled.
Lease payment validation: Confirm lease payments recorded during the period match contractual schedules.
Lease liability updates: Recalculate obligations using the Present Value of Lease Payments where required.
Right-of-use asset depreciation: Record periodic depreciation expenses for leased assets.
Interest expense recognition: Record interest components associated with lease liabilities.
Account reconciliation: Verify lease balances against supporting schedules and contract records.
These steps ensure lease balances are accurately reflected before the financial close cycle progresses to reporting and consolidation stages.
Integration with the Overall Financial Close
Lease closing activities typically occur alongside other operational close processes within the organization’s financial reporting calendar. This coordination ensures that lease-related entries align with broader accounting activities.
For example, organizations often synchronize lease closing tasks with the Inventory Close Process and the enterprise-level Multi-Entity Close Process to ensure consistent reporting across business units and subsidiaries.
Such alignment helps finance teams maintain a unified financial reporting timeline while ensuring lease obligations are properly consolidated into company-wide financial statements.
Example of a Lease Close Adjustment
Consider a company with a five-year office lease requiring monthly payments of $50,000. At the end of a reporting month, the finance team performs the lease close to record the appropriate accounting entries.
During the close, the team performs the following adjustments:
Records monthly interest expense related to the lease liability.
Recognizes depreciation expense for the right-of-use asset.
Updates lease liability balances based on the payment schedule.
These entries ensure that both the balance sheet and income statement accurately reflect the lease obligations and expenses for that reporting period.
Governance and Internal Controls
Because lease accounting involves significant financial commitments, organizations implement governance practices to ensure lease close activities are performed accurately and consistently.
Important control mechanisms include:
Documented policies for lease recognition and measurement.
Periodic reconciliation of lease schedules with general ledger balances.
Review procedures supported by Segregation of Duties (Lease Accounting).
Independent validation of lease accounting calculations.
These controls strengthen financial reporting accuracy and ensure compliance with corporate accounting policies and regulatory standards.
Technology and Process Optimization
Modern finance organizations often integrate lease close tasks with broader operational frameworks designed to improve reporting efficiency and coordination. Structured documentation methods such as Business Process Model and Notation (BPMN) help map lease closing activities and define responsibilities within the finance team.
Many organizations also coordinate lease accounting updates with shared services initiatives supported by Robotic Process Automation (RPA) Integration and Robotic Process Automation (RPA) in Shared Services. These technologies help finance teams manage recurring lease calculations and reporting updates efficiently as part of ongoing Close Process Optimization.
Summary
Lease Close Process ensures that lease-related financial entries are accurately recorded at the end of each reporting period. By reconciling lease payments, updating lease liabilities using the Present Value of Lease Payments, and recording depreciation and interest expenses, organizations maintain accurate financial reporting. Integrated governance, coordinated financial close activities, and adherence to Lease Accounting Standard (ASC 842 / IFRS 16) enable companies to manage lease obligations transparently while supporting reliable financial performance.