Accounting practices endeavor to establish close relationships as advisers to business clients. This is a goal for both large firms serving big businesses and local accountants helping small businesses. Commercial operations of all sizes benefit from an accountant’s input. The knowledge accountants sharpen with study for CPA credentials is applicable to every enterprise.
An example of the role accountants have in rendering advice entails situations where businesses are expanding. Before undertaking any construction to modify leased space, companies should consult with their accountants. The accounting implications of build-to-suit lease agreements are not a matter easily understood by the average business owner or manager. But this is a subject covered thoroughly in CPA study material.
Accountants are positioned from their professional training to measure and evaluate the cash flow and income tax impact of leasehold improvements. Translating an explanation of these elements from the language of CPA review classes into practical insight for business operators is a key accounting service.
When a business leases an office location, the normal accounting rules allow recording of an expense for the rent payments. Any improvements constructed by the landlord that permit occupancy of the space are irrelevant to the tenant. However, the situation has a different treatment when the occupant of leased offices pays for improvements. In that case, a different set of rules is applied from courses for CPA training.
A business that pays to fix up expansion space in an office building finds that it must carry the cost as an asset on the balance sheet. This is exactly the arrangement that accountants come across during their early years of professional study. An accounting principle is applied that corresponds with the nature of a company’s continuing involvement in the space it constructed. That results in recognition of an asset. The cost is therefore depreciated over time. A business is not allowed to record an expense deduction for the money spent on leasehold improvements.
The circumstance for each business affect whether an asset is included in the costs for leased office space. For instance, an accountant must discover if a business is paying directly for construction with no right of reimbursement. When that describes the situation for a tenant, the company records construction costs as a depreciable asset. Any partial reimbursement by the building owner is subtracted from total construction cost to determine the final leasehold improvement value. Leases often have a cap of financial responsibility for the landlord. Any excess paid by the tenant is placed as an asset on its balance sheet.
Accountants are certain to encounter business activities that match the scenarios in CPA review material. Cases of leasehold improvements are a typical example demonstrating the relevance of exam study to actual situations uncovered in accounting work.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.