Understanding Operating Lease Income Calculation Methods

This article is only discussing Operating Lease Income.  It is not discussing income/accrual functionality for Contract Items like IDC's, Subsidies, Financed Fees, etc. on Operating Leases.

Please refer to the attachments for more information.

In ASPIRE, Operating Leases handle their Income in a completely different method than Finance Leases or Loans.  There is a setting within the Administration > Accounting > Accounting Options screen that will indicate how your ASPIRE site (or the individual Finance Companies in your site) will handle Operating Lease Income.  Whether your site is configured at the Finance Company level or Global (All Companies) level, this screen will function the same. 

1. You will set a "Global (All Company) Default" for the Operating Lease Income Method
   
2. You may also set an individual Finance Company level override, or indicate the Finance Company needs to follow the Global Default.
   

With Operating Leases, the amount of the Rental Payment Stream added up (reflected as the "Equipment Receivable" amount on the Accounting Screen) is the total amount of Operating Lease Income that the Operating Lease will earn over the life of the contract.  The 2 Options for Operating Lease Income impact the speed and frequency in which the Operating Lease earns its income.

The Options available for Operating Lease Income Methods are:

1. Straight Line
   
1. Occurs during the Daily Earnings / Month End process.
2. The Finance Product Detail setting of "Year Length" will impact the calculation of Income.
   
1. 360 Day Year:  Every month is counted as a 360 Day Month.
   
2. 364 Day Year:  Acts exactly the same as 365 Day Year.  The exact number of days in the term of the contract as well as the exact number of days in each month will impact the calculation.
3. 365 Day Year:  Acts exactly the same as 364 Day Year.  The exact number of days in the term of the contract as well as the exact number of days in each month will impact the calculation.
   
3. Every month, the lease will earn the same amount of income...
   
1. With the exception of the first and last month, as the actual number of days the contract is on the books will impact the amount earned during the first and last month.
2. Consistent with Payment Schedule
   
1. Occurs during the Invoicing/Payment Receipt process, depending upon the Rent Transaction Code configuration.
   
1. Cash Basis Rent.
   
1. No Entries when opening the invoice.
   
2. Earnings recognized when the Cash Payment is applied to the Rent Invoice.
   
2. Accrual Basis, Post when Invoiced.
   
1. Entries created during the invoicing process drive the Income.  The GL Entries for the Income are as of the date the invoice was created.
   
3. Accrual Basis, Post when Due.
   
1. Entries created during the invoicing process drive the Income.  The GL Entries for the Income are as of the date the invoice was due.
   
2. The Amount of the Invoice is the Amount of the Income.
   
1. If the payment amount is $1000, that is the amount of income.
3. The Frequency of the Payment Stream is the Frequency of the Income.
   
1. If the payments are monthly, the income will occur monthly.
   
2. If the payments are quarterly, the income will occur quarterly.
   
3. If the payments are annually, the income will occur annually.

There is a standard report that will help you be able to get a visual of the Operating Lease Income.  I suggest running the following report:  Contract Earning Projection 120 Months report, which can be found within the Earnings folder on the System Reports dashboard.  Upon running the report, there is a field called "Select Included Contract Items".  If you select only "Contract", this will display the Operating Lease Income on a monthly basis.  

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