Bill moves in September. The sequence of events takes three weeks and costs more than he planned, which he planned for, because EP.15 and EP.16 existed even if he did not call them that.
The flat is a shared apartment, three bedrooms, two flatmates he found through a housing platform. The rent is 600 per month. The landlord requires two months deposit upfront. Bill writes a bank transfer for 1,200 euro on the first of September and watches his savings drop to 5,040 in a single transaction.
Under IFRS 16, a lease creates two entries simultaneously: a right-of-use asset, representing the value of the right to occupy the property, and a lease liability, representing the obligation to pay future rent. The asset and the liability are equal at inception. Over time, the asset depreciates and the liability reduces as payments are made.
When Bill signs the lease, he acquires something: the right to live in that flat for the duration of the contract. He also commits to something: 600 euro per month for twelve months, a total obligation of 7,200 euro.
The deposit of 1,200 euro is not an expense. It is a recoverable asset: money held by the landlord that Bill will receive back at the end of the lease, assuming he leaves the flat in good condition.
The ledger records the move. Three entries: right-of-use asset, lease liability, and a security deposit on the asset side.
The tip
When you sign a lease, record two things: the asset you acquire and the liability you assume. The deposit is not a cost. It is your money held elsewhere. The distinction matters when you read your balance sheet.
Lease accounting, September 2025: monthly rent 600, lease term 12 months, total obligation 7,200. Security deposit 1,200 (recoverable asset). Post-relocation cash: 5,040. New monthly surplus: 185.
Bill is 25. Every episode, we read his personal ledger through accounting eyes. / FY 2025 ledger