USA Deleting/Removing an Asset Account that was set up erroneously

[olivia]

I'm not even sure if this can be done.

My company is a small construction firm that uses AccountEdge 2008 (MYOB) and I've been working here for several months now. Before hiring an accountant, the owner bought and set-up the company file himself.

He added the building we occupy as an "Asset account" the company owns. The problem is that the business does not own the building, it just pays the mortgage and interest payments (technically rent to owner), so we should have had an "Expense account" for the rent instead of the "Asset account" for the Building and corresponding "Liability account" for the Mortgage.

This obviously overstates our assets and liabilities anytime i try to make reports, and i have to manually do calculations to take off the appropriate numbers.

I want to change these accounts; delete the asset & liabilities and start using the appropriate expense account and I've been researching but i can't seem to find a way to do it without just starting a new company file. Obviously, i would like to avoid that because it would be very tedious.

I would appreciate suggestions on how to fix this problem.


Thanks.

Olivia

 

[bklynboy]

The problem is that the business does not own the building, it just pays the mortgage and interest payments (technically rent to owner), so we should have had an "Expense account" for the rent instead of the "Asset account" for the Building and corresponding "Liability account" for the Mortgage.

Who owns the building then and why is the company paying rent equal to the mortgage payment?

First step, you will also need to evaluate if this is a capital lease under US GAAP or an ordinary lease. If capital lease then you do need to account for it as if you own the building. See FAS 13 (ASC 840-30).

Assuming, your facts are as stated that the firm does not own the building then the accounting is very simple. You need to reverse the building asset (and presumably some sort of liability was created that would also be reversed). You then need to calculate how much was the rent for each year and adjust retained earnings for this amount. You will also need to reverse any interest/depreciation expense that was recorded since the building was treated as an asset. Best to lay out what have been the transactions to date and from there you can determine what the adjusting entries need to be.

Note that the pending lease guidance currently under discussion will eliminate all ordinary leases and force you to set up assets/liabs as if they are owned (idea beng that you "own" the property during the lease term and are entitled to reflect the benefits as an asset).