Lease Accounting Best Practices & Reconciliation

Data Entry

Initial Application Date: Select the appropriate date to apply the standard to the lease portfolio. Once selected, this date is difficult to change. In order for the transition year Footnote Disclosure to be accurate, the Initial Application Date must be correct. For more about this topic, click here.

GL Accounts: Begin with new GL Accounts for lease accounting. These accounts will be used only for the lease accounting standard making it easy to reconcile the accounting system to LeaseCrunch.

Clearing Account: The Cash/AP Clearing account in LeaseCrunch software provides recognition for all cash payments associated with a lease regardless of fixed or variable payments. When posting payments via an Accounts Payable system, post those invoices to offset the clearing account. The LeaseCrunch Journal Entries will offset to this clearing account, netting to zero.

Discount Rate: Avoid using the same discount rate for all leases.

Variable Expenses: Enter into LeaseCrunch when adding leases to easily offset clearing account. Entering variable expenses will also populate the Footnote Disclosure.

Reconciliation

Make a plan to post LeaseCrunch Journal Entries on a regular basis. After posting the Journal Entries, reconcile the General Ledger to the LeaseCrunch

Use Amortization Schedule Balance columns to ensure systems are in alignment. 

Reconcile the Clearing Account regularly to ensure accurate posting of all entries and AP invoices.

Troubleshooting

In the event there is a discrepancy between LeaseCrunch reports and the General Ledger, spend time reviewing the Amortization Schedules for each month to determine where the differences lie. 

Next, review the Amortization Schedule Data by Lease (check box under GL Start Date) for the month determined above. This will help narrow down which lease may be causing the discrepancy.

Review the My Leases grid for Modified Date. This column will tell you which leases were modified and when which may help narrow down where issues occur.

Transition Year Adjustments

Most organizations had posted their expenses in their transition year under the old standard, posting to expenses through AP

To reverse entries posted in year 1 under the prior standard, review the following options:

Make a journal entry to reclass transition year expenses for each lease posted under the old standard to a clearing account. It's important to note the expenses being reclassed should be in line with lease payments added to LeaseCrunch so they eliminate from the clearing account. An example of the reclassing entry is shown below:

Debit: AP Clearing

Credit: Expense

Once the entries have been reclassed and the matching leases have been entered in LeaseCrunch, post the LeaseCrunch Journal Entries, then reconcile as discussed above.