Accounts Payable and Lease Accounting
Three Ways the Systems Interact
Throughout the term of a lease, your Accounts Payable organization will be processing invoices and making payments to lessors. To create the proper journal entries for lease accounting, you will need visibility into the transactions being logged in your accounts payable application. There are three primary ways that your accounts payable and lease accounting systems should interact:
1) Expected Payment Schedule
Most lease accounting systems can forecast the expected invoice amounts to be paid each month by using the data entered into the system such as base rent, variable rent, and other scheduled payments. Once a night (or less frequently if desired), the lease accounting application should post expected payments to AP. Managers processing invoices from lessors can then compare the expected charges to the actual invoiced amounts. Discrepancies can be researched and resolved to ensure that the leasing company is not being over or under paid.
2) Capture Invoiced Expenses
For each invoice received from a lessor, you will want to capture the lessor name, invoice amount, invoice number, and invoice data from the AP application. These details should be loaded into the lease accounting subledger to generate the appropriate variable lease expenses or operating expense accruals. In some cases, there may be invoiced expenses that were not part of the expected payment schedule. For example, some equipment contracts have monthly rents based on consumption or utilization. Think photocopiers that are billed by the page. Some real estate leases include charges for monthly operating expenses. Think common area maintenance (CAMs) charges for utilities and building services.
3) Actual Disbursements
Once the payment is released, you will want to capture the details of the actual disbursement made from the lessor. Details such as payment amount, payment date, payee, and invoice number should be uploaded into your lease accounting system to perform clearing of the expected payment in the sub ledger. Additionally, the actual disbursements should be reconciled against the actual and predicted invoice expenses for each lease. When lessors call with inquiries about remittance advices and actual payments, the lease accounting system can be used as the system of record to resolve any questions.