Introduction
Lease accounting has changed dramatically with the adoption of ASC 842, IFRS 16, and GASB 87. Companies can no longer treat leases as simple rent expense — they must now record Right-of-Use (ROU) assets and lease liabilities on the balance sheet, and recognize interest and amortization in the income statement.
For many finance teams, the first instinct is to manage this transition in Excel. In this guide, we’ll walk through how to do lease accounting in Excel, step by step, and where the challenges lie — plus a smarter way to automate the process.
Basics of Lease Accounting
Before jumping into Excel, it’s helpful to recap what’s required:
- Identify and classify leases (finance vs operating).
- Calculate lease liability: present value of future lease payments, discounted using the incremental borrowing rate or implicit rate.
- Calculate ROU asset: generally equal to lease liability, adjusted for initial costs, incentives, or prepaid rent.
- Build an amortization schedule: split each lease payment into interest expense and reduction of liability.
- Record journal entries each period:
- Dr. Amortization Expense
- Dr. Interest Expense
- Cr. Lease Liability
- Cr. Cash
Step-by-Step: Lease Accounting in Excel
Step 1: Gather Lease Data
Set up a sheet with the following inputs:
- Lease start date and end date
- Monthly (or quarterly) payment amount
- Discount rate
- Number of periods
Step 2: Build a Payment Schedule
Create columns for:
- Period (Month 1, Month 2, …)
- Payment
- Interest Expense (= Opening Liability × Discount Rate ÷ 12)
- Principal Repayment (= Payment – Interest)
- Ending Liability (= Opening Liability – Principal Repayment)
Use Excel formulas like IPMT() and PPMT() to simplify these calculations.
Step 3: Calculate ROU Asset Amortization
Set ROU Asset = Initial Lease Liability.
Amortize it on a straight-line basis:
- ROU Amortization Expense = Initial ROU Asset ÷ Lease Term
Step 4: Create Journal Entries
Build a journal entry sheet linking to your schedule. Example:
- Month 1 Entry
- Dr. Amortization Expense (P&L)
- Dr. Interest Expense (P&L)
- Cr. Lease Liability (Balance Sheet)
- Cr. Cash
Step 5: Roll Into Financial Statements
Use SUMIFS or pivot tables to summarize:
- Lease Liability on the Balance Sheet
- Amortization & Interest Expense on the P&L
Example Layout in Excel
| Period | Payment | Interest | Principal | Ending Liability | Amortization | Total Expense |
|---|---|---|---|---|---|---|
| 1 | 5,000 | 400 | 4,600 | 95,400 | 4,770 | 5,170 |
| 2 | 5,000 | 382 | 4,618 | 90,782 | 4,770 | 5,152 |
| … | … | … | … | … | … | … |
Challenges of Doing Lease Accounting in Excel
While possible, maintaining lease accounting in Excel is manual and error-prone:
- Each lease requires a new schedule.
- Modifications, renewals, or terminations require rebuilding models.
- Difficult to consolidate across entities or departments.
- No built-in audit trail or controls.
For a handful of leases, Excel works fine. For 50+ leases, it quickly becomes unmanageable.
Smarter Alternative: Automating with PivotXL
Instead of building lease schedules from scratch every month, you can use PivotXL’s multidimensional data cube to:
- Pre-program lease assets, liabilities, and payment terms.
- Automatically generate ROU amortization and liability roll-forward.
- Import your trial balance each month and see leases flow directly into your P&L and balance sheet.
- Slice results by entity, cost center, or lease type — all inside Excel.
This gives you the compliance of lease accounting plus the flexibility of Excel-based FP&A, without the manual burden.
Related Read:
10 Best Lease Accounting Software in 2025 – Explore top tools for lease accounting and see how PivotXL offers a flexible Excel-based alternative.
Conclusion
Excel can handle lease accounting if you’re careful: build payment schedules, calculate interest and amortization, and roll results into financial statements. But as complexity grows, finance teams need automation.
Whether you stick to Excel or move to an Excel-powered solution like PivotXL, the key is having a repeatable process that ensures compliance, reduces errors, and integrates with your broader financial reporting.
