Account Setting - Setting Up Lease Accounting

Account Settings – Setting Up Lease Accounting Default Values

As the administrator, you will need to set up iLeasePro with default lease accounting values in order for your team to get the most out of the iLeasePro solution.  

By setting up the default values, you do not have to worry about updating each lease with the accounting method and relevant borrowing rate, because iLeasePro lease accounting feature will use these defaults if the values have not been overridden at the lease level.

You can find more detailed information on the Lease Accounting changes on the iLeasePro blog at http://blog.iLeasePro.com.  

 

Default Accounting Method 

Select from the dropdown list, the accounting method that you will most like use for most of the leases in your portfolio.  

Under the proposed lease accounting changes, leases would be classified at the lease commencement date as follows;

Short-Term

• Lessees can select the option of the Short-Term method for those leases that have a maximum possible contractual lease term, including any options to extend, of 12 months or less.  Any lease that contains an option to purchase will not be considered a Short-Term Lease.  

Finance

• Leases that are not property (i.e.,  equipment and vehicles), would be classified as Finance  leases. The proposed expense is classified partly as interest and partly as amortization and the expense recognition is accelerated into the early years of the lease term.  

• Exceptions would be leases where;
• the lease term is for an insignificant part of the total economic life of the underlying asset
• the present value of the lease payment is insignificant relative to the fair value of the underlying asset

• If a Lessee has a significant economic incentive to exercise an option to purchase the underlying asset, the lease would be classified as Finance.

Operating

• Leases of property (i.e.,  land, building or part of a building, and certain equipment), would be classified as Operating leases. The proposed expense is classified as lease expense and the expense recognition pattern is straight-line, similar to the manner in which expense is generally recognized now.

• Exceptions would be leases where;
• the lease term is for the major part of the remaining economic life of the underlying asset
• the present value of the lease payment account for substantially all of the fair market value of the underlying asset

Default Borrowing Rate – The borrowing rate, or discount rate, will be determined on a lease-by-lease basis and used to calculate the present value of the lease payments. Lessees will use the rate the Lessor charges the Lessee if that rate can be readily determined.  If the rate cannot be determined and is unknown, the Lessee would use its own incremental borrowing rate, is be the interest rate that the Lessee would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.  A lessee that is not a public business entity is permitted to make an accounting policy election to use the risk-free rate (the rate of zero coupon U.S. Treasury instrument).

Enter in the typical borrowing rate as a percentage. For example 3.50.

Integrated Partner Accounting Software

If you are a customer of one of the integrated accounting software solutions, you can setup an webservices connection to directly read from and upload lease accounting journal entries directly from iLeasePro to that accounting solution.

Partner Accounting Software:  Select the accounting software provider from the dropdown list and enter in the correct user access information for that solution.  Click on the Validate Account button to ensure the connection is successful. 

Subsidiaries / Operating Entities

Note: General Ledger Accounts will be require setup for each Subsidiary that has been created

 

Select from the dropdown list the Subsidiary.  Once selected the general ledger accounts required for Lease Accounting will be displayed and require accounts. 

For integrated accounting solutions, these accounts will be required to be added in your accounting system of record (eg the Integrated Partner Accounting Software selected above)   

Lease Accounting Journal Entry General Ledger Accounts

The iLeasePro Lease Accounting feature requires General Ledger accounts in order to create the journal entries that can be either uploaded or automatically synced up (see list of authorized accounting systems) to your accounting system of record.  The Accounts Payable account is the only required entry.

Intacct Users - Select "Clearing Account" as your Cash Account.  Non-Intacct Users should select "Accounts Payable".

Enter in the corresponding account value that has been set up in the Chart of Accounts of your accounting system of record.  The accounts can be up to 10 characters.

Entering General Ledger Accounts

For additional information on the general ledger accounts required for the FASB ASC 842 standards, review the iLeasePro ASC 842 assumptions and calculations document

To add general ledger accounts, you must select the Subsidiary or Operating Entity, from the Subsidiary dropdown list as shown below, that you are interested in applying the accounts to.  Once selected the field boxes will be displayed and you can enter in the general ledger accounts you will need.  The only required account is the Accounts Payable / Clearing Account