Leasing assets is one of the most practical ways businesses make most of their assets.
Leases increase cash availability for a business to boost its purchasing power, provide control over assets, offer tax benefits, and improve cash flow.
However, with the US releasing new lease accounting standards in 2019, maintaining accounts for leases has become a complicated affair.
The standards have introduced new changes in lease accounting, making it challenging for businesses to ensure accuracy and efficiency. Thus businesses that formerly relied on spreadsheets need to look for a better solution for their accounting needs.
So, where do businesses find that solution?
To make lease accounting a less daunting task, NetSuite has introduced a new feature in its Fixed Management SuiteApp that can help you perform lease accounting effortlessly.
The idea behind adding this feature is to automate the lease accounting process and prepare businesses to meet the legal standards.
If you haven’t found a way to deal with challenges in your lease accounting task yet, we recommend you learn about this new add-on in the NetSuite app and find out what it offers.
But first, let’s give you a quick overview of the basics of lease accounting.
What is Lease?
On a broader level, a lease is a contract between two parties: a lessor and a lessee.
Under a lease contract, the lessor allows the use of their assets to a lessee for a certain period of time in exchange for payment(s).
Think of a lease as a record of details that specify you (lessee) agree to get a car or property on rent for an X amount of time and would pay Y amount of money to the lessor (owner of the car or property).
There are many types of assets businesses can lease, for example, office buildings, vehicles, property, computers, factory equipment, and pretty much anything. Businesses use different types of leases tailored to the specific needs of each agreement.
What is Lease Accounting?
Simply put, lease accounting is the process of keeping a record of all lease-related expenses, revenues, and finances to properly reflect the nature of the agreement.
Since a lease is a legal contract, businesses need careful planning and proper tools to account for it. For most practical lease accounting matters, modern businesses are turning to popular account management software to improve accuracy and productivity.
Consider Your Lease Accounting in NetSuite
NetSuite is a globally popular accounting software solution businesses use for general accounting. The software maintains popularity because of its wide range of functions and timely customer support.
For generic accounting matters, NetSuite is excellent software. However, it does not incorporate native capabilities for lease accounting.
To get lease accounting capabilities within NetSuite, the ideal solution is to use an application built within NetSuite SuiteApp, for example, LeaseQuery for Netsuite.
This app creates automated journal entries, generates customizable reports, and provides required disclosures within NetSuite.
NetSuite lease accounting feature allows you to perform the following tasks:
- Create a lease record
- Add new lease payments
- Create a schedule for lease amortization
- Generate a lease journal entry
- Record lease interest
- Modify lease records
- Receive general notices
Which Companies Need a NetSuite Lease Accounting Solution?
Any company can benefit from lease accounting software regardless of the number of leases it handles. NetSuite lease accounting can facilitate compliance and increase lease accounting efficiencies for all types of businesses.
Lease accounting software is crucial for industries like healthcare, banking, finance, retail, and restaurant, which have extensively distributed teams and hold heavy lease accountability.
In particular, for companies with complex leases or over ten leases, a software solution is critical. Since each new lease standard has introduced new changes, which we should not ignore, the software can greatly help keep everything organized.
What to Look for in a Solution
When you are using spreadsheets to add data that is huge and complex, contains loads of errors, and takes ages to summarize, you need to move on from spreadsheets to a better solution.
To find an ideal lease accounting solution, you should look for software that:
- Shifts your existing lease portfolio to the new standards
- Performs calculations such as lease liability and ROU asset
- Creates journal entries and produces lease amortization schedules
- Classifies leases based on their types (such as finance or operating)
- Provides a central location for lease management information
Additionally, a perfect solution will easily fit into NetSuite and integrate with your company’s accounting-related areas, such as charts of accounts, vendors, currencies, departments, classes, and locations.
Also, consider the size of the vendor too. You need a team of substantial size with expertise to help you transition to new standards.
Your solution provider should also assist you in staying up to date with changes in standards and provide the support you need.
To ensure you choose the right solution, check third-party validations such as an AUP (agreed-upon procedures) or SOC (service organization controls) report from one of the big four firms, strong accountant reviews, and a large existing customer base. These validations can give you the clarity that you are opting for a proven solution.
Automate the Lease Accounting Process
NetSuite lease accounting automates the entire accounting process to save time, lower risk, and enhance the accuracy of financial reports. Your accountants can use the software to document new and existing leases from different parts of the organization, such as subsidiaries or business units.
By creating a central hub of all lease records, including signed copies of lease documents, the NetSuite app allows your authorized personnel to review and update information through the web or their mobile phones.
Under new standards, businesses need to maintain their balance sheets for all their lease arrangements, including future expected lease liabilities.
NetSuite takes this task off your shoulders by automatically posting expenses to the general ledger. It also separates monthly payments from interest fees using an appropriate percentage for each lease.
At the same time, your asset value and lease liability also get updated to give you an accurate, real-time view of your balance sheet.
Additionally, the app would send automated alerts reminding you of lease options with near expiry or any close renewal dates.
This way, NetSuite gives your business a simplified lease accounting experience, ensuring your business compliance with the US and global accounting standards.
For all those businesses that lease assets, compliance with the leasing standards is a must.
Compliance with standards requires companies to create a centralized hub of all their lease information and ensure accuracy in calculations.
To account for leases accurately and efficiently, the NetSuite lease accounting feature provides companies with everything they need- on top of which is automation.
Apps like LeaseQuery for NetSuite automate and simplify the accounting process and ensure accurate calculations.
With LeaseQuery, companies do not need to maintain a balance sheet of leases manually because the NetSuite app can handle it automatically.