New JDE Lease Accounting Software Functionality
12 Minute Video
What are the New Lease Accounting Standards?
FASB and IASB released a new lease accounting guidance, which requires many companies to change how they account for and report on lease transactions. The primary reason for the new regulations is to ensure transparency into a company’s leased assets and liabilities. With the changes virtually all lessors or lessees will be required to calculate lease values and make those calculations to their current balance sheets.
Prior to this revised standard, lease assets and liabilities may not be clearly identified as they may be embedded in different parts of the system, including service agreements, as a simple accounts payable transaction, or they are provided along with goods and services. There is also the need to be able to compare companies that lease assets with those that buy assets. Finally, prior to this updated standard, the standards boards determined that companies often overestimate obligations that were not reported on the balance sheet.
Lessees must recognize leased assets on the balance sheet for both property (office space, retail space, industrial warehouses, etc.) and non-property (office equipment, vehicles, etc.). Lessors of property will also need to conform to the revenue recognition accounting standard “Revenue from Contracts with Customers” but following the adoption timeline for the lease accounting standard.
The effective date for public entities is expected to start with reporting periods beginning on or after December 15, 2018. The effective date for nonpublic entities will be deferred for one year to annual reporting periods beginning after December 15, 2019 and interims beginning after December 15, 2019.
New JDE Functionality
JD Edwards has released new functionality to meet lease accounting software standards. This functionality from the software:
- Tracks unique lease agreements with vendors in order to recognize the newly required rights and obligations
- Creates Amortization Schedules for the lease’s Right of Use Asset and Lease Liability
- Generates monthly accrual General Ledger entries for the lease agreements
- Interfaces with Fixed Assets to track lease costs by Asset
- Interfaces with Accounts Payable to create vouchers for lease payments
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Ready to implement the new Accounting standard? We can walk you through the implementation steps – creating an address book, asset numbers, how to commence the lease, how to create journal entries and more.
Lessee Accounting
What’s New
- The classification of the asset must be a “Right of Use” Asset, which will be amortized over the life of the lease.
- The Lease Liability will be reduced with lease payments over the life of the lease.
Classifications
There are two classifications for the Lessee when engaging in a new lease– Finance and Operating. If the lease is classified as a Financial Lease:
- Transfer of ownership of the asset takes place
- Lessee option to purchase asset
- Lease term for a major part of the remaining life of the asset is in place
- Present value of lease payments and residual value are almost all of fair value
- No value to lessor at the end of the lease
If the lease does not meet any of the other criteria and applies to the lessee, than it would be classified as an Operating lease.
JDE Lessee Implementation
For JD Edwards, what does it take to implement this new accounting standard? Especially for the Lessee, there are three pieces that must be used during the implementation:
- Fixed Assets
- Accounts Payable
- Real Estate Management
The Real Estate Management module is heavily used and allows the ability to streamline financial and operating processes. The module provides access to monitor real-time data from the lease agreement.