All auditors operate under Generally Accepted Accounting Principles, which have some very strict rules around how leases, and rental payments, can be handled through your accounting systems.
For non-accountants and auditors alike these can be complicated considerations, and it is very easy to mistakenly enter data incorrectly into your system, which is why a lease management software program can be so beneficial. Top software programs will allow you to maximize your revenue while minimizing any types of errors, risks or liabilities, and it will be designed to utilize the same Generally Accepted Accounting Principles as your auditors will use.
The result will be a more effective, efficient and accurate management of your lease portfolio. In particular, these software systems can address common mistakes in straight lining, capitalization, amendments and renewal options.
Straight Lining
In many lease agreements the lease amounts may change over the duration of the lease, however with straight lining principles the amount of the lease should remain constant over the terms of the lease.
With lease management software this difference between the straight-line lease and the actual amount to be paid can be calculated and billed. The software will automatically record the differences over the life of the lease, resulting in an accurate representation for accountants as to what has actually been billed, collected and what is the straight-line lease amount per month.
Capitalization
Choosing a capital lease over an operating lease has an impact on how accounting will come into play. Capital leases are the only leases that will have to be reflected on a balance sheet, which makes these critical. A capitalized lease, in at a simple and basic level, appears as if it was a purchase.
This is particularly important since it can then be depreciated, and this is important when straight-line depreciation comes into play if this is also the way all other assets are depreciated through your accounting system.
Amendments and Renewals
With a lease management software program amendments to the original lease are very easy to record, track and keep right at your fingertips. As a lease amendment has to be approved by both parties, having the software to generate the document and then allow you to enter it to keep a permanent record of the agreement is essential.
The same is true for renewals. The software program can be developed to help your accounting department by prompting lease managers to remind them of renewal dates, and then also allowing a simple way to enter the renewal into the system that automatically is transferred through to the accountants.
