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Lease Accounting Overview ASC 842 (FINANCE Leases (Each Accounting Period…
Lease Accounting Overview ASC 842
FINANCE Leases
At the commencement of the lease
Debit: ROU Asset (present value of the Asset)
Credit: Lease Liability (present value of the Asset)
Solution:
Add this
Asset
in the Assets application – the debit is to the Asset Cost Account that was assigned in the Asset Category - which in this case is the ROU Asset Account. Assets will make the credit to the assigned Asset Clearing Account and not to the Lease Liability account, however this can be changed in SLA prior to posting
Each Accounting Period after
:
Debit: Interest Expense Account (calculated as Lease Liabilty amount
borrowing rate)
Credit: Lease Liability Account (calculated as Lease Liabilty amount
borrowing rate)
Solution:
In
Assets
: When creating Lease Payments, you can create an amortization schedule. This schedule shows the interest expense amount that has to be recognized over the life of the lease. After identifying this amount – programmatically store and create an
GL journal entr
y for this amount - to the Interest Expense and Lease Liability Accounts for the interest expense amount for the period.
Debit: Amortization Expense Account (present value of ROU asset / Lease term months)
Credit: ROU Asset Account (present value of ROU asset / Lease term months
Solution:
In
Assets
: Assign the Amortization Expense account to the Asset. When creating Depreciation entries, Assets will create a debit to the Depreciation/Amortization Expense account. Assets will credit the ROU Asset account (which will come from the Asset Category).
Debit: Lease Liabilty Account (Total of yearly Lease Payments)
Cash: Cash Account (Total of yearly Lease Payments)
Solution:
In
Assets
:
• Create Lease payment schedules, assigning the Lease Liability account. Export the Lease payments to Payables (standard functionality). This will send the debit to the Lease Liability Account and the credit to the AP Liability Account.
• When the invoice is paid in Oracle
Payable
s – the AP Liability account will get debited and the Cash Account will get credited
OPERATING Leases
At the commencement of the Lease:
Debit: ROU Asset (present value of the Asset)
Credit: Lease Liability (present value of the Asset)
Solution:
Add this Asset in the
Assets
application – the debit is to the Asset Cost Account that was assigned in the Asset Category - which in this case is the ROU Asset Account. Assets will make the credit to the assigned Asset Clearing Account and not to the Lease Liability account, however this can be changed in SLA prior to posting.
Each Accounting Period after:
Debit: Lease Expense Account (Total Lease Payments / Life of Lease)
Credit: Cash Account (Lease Payment for the period)
Credit: ROU Asset Account (Net difference between Period Interest Expense and Lease Payment)
In
Assets
:
• Create Lease payment schedules, assigning the Lease Expense account. Export the Lease payments to Payables (standard functionality). This will send the debit to the Lease Expense Account and the credit to the AP Liability Account.
• When the invoice is paid in Oracle
Payables
– the AP Liability account will get debited and the Cash Account will get credited.
• Programmatically, calculate and create the normalized depreciation amount expected by ASC 842 (Total of Lease Payments/# of Periods). Calculate the net depreciation difference in what Oracle calculated and the normalized depreciation amount. (Note: in some cases - there may not be a difference.)
• Programmatically create a
SLA
journal entry for this amount – debiting the Lease Expense Account and credit the ROU Asset Account. (Note: in some cases - this step may not be needed- there may not be a difference.)
Debit: Lease Liability Account (Period Lease Payment less Period Interest component)
Credit: ROU Asset Account (Period Lease Payment less Period Interest component)
.Solution:
Identify this as an Operating Lease (DFF). Enter in the necessary information about the Lease in the Lease Details area in
Assets
(Total of Payments, Life, Discounted Rate, etc.) Programmatically calculate the Lease Liability and create a
GL journal entry
for this amount – debiting the Lease Liability Account and crediting the ROU Asset Account.