Lease accounting is about assets that are leased out to a third party and how their finances are accounted for. It can be made easier now by the use of specialist software that takes care of many aspects of it. If you are wanting a more efficient way to manage lease accounting then try EZLease.

So, what is involved with lease accounting and just how can we make it easier?

What is Lease Accounting?

Well, a lease is a kind of transaction made in exchange for a company’s right to use an asset. The company will pay the other party an agreed sum, rather like rent, in exchange for it having the asset to use within its business. In accounting terms, the main leases to consider are financing (capital lease) and operating leases.

A company will lease the assets that they need to operate when they are financially unable to buy them or because it makes financial sense when they quickly depreciate and, in effect, lose money. It is also easier to lease when a company is constantly needing to update its equipment to keep up-to-date with technology.

What Types of Items are Leased?

The most common types of items that are leased include commercial vehicles, construction equipment, plant equipment, hospitality equipment, and medical equipment.

Firms will specialize in the types of equipment that companies need. It can be useful for a business where work is seasonal and when specific types of construction equipment are needed for a certain job, for example.

However, this may not apply to every job. It can help with the accommodation of equipment to have short-term leases that only last for the amount of time the equipment is needed.

Difference Between a Finance and an Operating Lease

In a finance lease agreement, ownership of the property is not transferred to the lessee until the end of the lease term. Whereas, with an operating lease agreement, ownership with regards to the property is retained during and then after the lease term.

Other Types of Leases

The other types of leases include the conveyance type, non-leveraged and leveraged leases, non-pay out and full leases, non-net and net leases, sales aid leases, tax-oriented leases, specialized service leases, international leases, cross-border leases, sale and leaseback, commercial leases, and import lease.

With a non-pay out lease, the lessor will lease the same asset time and time again due to non-payment. This makes for a lot of accounting to be done to record this.

With an international lease, there will be parties from different countries to keep track of accounts.

An import lease will mean that the equipment provided on the lease will be in a foreign country, whilst the lessor and lessee may belong to the same country.

What Do Lease Accountants Do?

The job of the lease accountant is to gather, verify, and then input cross-functional data. This is to the lease management tool.

It is the responsibility of the lease accountant to make a record of lease journal entries monthly and to complete account reconciliations. Also, to initiate the lease payments.

This is what would have to be done manually without software but can be made easier by having it.

So, how can we make lease accounting easier?

Software to Take Care of Lease Accounting

Lease accounting software will allow businesses to meet every deadline. It can be set up quickly and create a map to the main accounts. Policy controls are easy to apply and bulk leases can effectively be validated.

Things like governance and classification are built into the software to make lease accounting easier. Then, when it comes to auditing, this won’t be a problem as the reports will already be set up and ready to use.

It is about being in sync with your operations and better management of leases from an accounting point of view. It pays to have the right software to manage operations and effectively account for them.

Software is about being on top of your leases and always knowing where you are with them financially. It provides an instant view of what is going on and puts a company in a much better position for having it.

So, lease accounting has never been easier.

Hopefully, we now have a greater understanding of how involved lease accounting can be and how it can better be managed by lease accounting software. If you have not already, follow the top link to find out more.

Shift Frequency © 2021 – Lease Accounting and
How it Can Be Made Easier