Accounting Flow and Related Information

Author: Navin Gadidala, PM & Strategy-Leasing

Introduction:
Lease Accounting (FLA) a new product on Oracle Cloud which is bundled with Oracle Financials. This paper captures the
accounting flows for all accounting events seeded by Oracle till 21.C.
Lease Accounting supports Multi-GAAP and using this feature, customers can comply with multiple accounting standard-
IFRS1 and USGAAP-ASC 42 in Primary and Secondary Ledgers as per their choice.
Lease Accounting supports Multi-Currency distinguishing between Monetary/Non-Monetary items.
Accounting Events
Till 21.C, FLA has the below mentioned accounting events/classes seeded. Please go through the below table:
S.No Accounting Event Explanation
Lease Booking event generates ROU, Lease Liability and Reserve if needed. This
accounting event is generated when the Lease Status moves to 'Active' and Lease
a Lease Booking Version Status moves to 'Finalized.
Lease Version Status moves to 'Finalized' when 'Attach Lease Details Report' is
clicked as a final step in Lease Activation.
 This process generates Lease Interest and Lease Amortization Expenses for each of
b Lease Expense the periods. 'Process Lease Accounting' ESS generates the transactions for the Lease
Expenses
Lease Revision accounting event is generated whenever an amendment is finalized.
Scope Increase/Scope No change/Scope Decrease will cause Lease Revision events.
c Lease Revision Only for Scope Decrease, gain/loss is generated. Users can also update Lease
Payments and this will cause Lease Revision.
Early option exercise will also lead to Lease Revision.(21A and 21B)
Lease Payment Compliance payments with Lease Liability checkbox when approved, generates
d Lease Payment Approval Accounting Event(21.B). With this event, Lease Liability
Approvals
balance is brought down.
Added in 21C. Lease/Asset Termination generates this event. Even exercise of
Termination option leads to this accounting event. ROU/Liability balances on the
e Lease Termination termination date are rolled off with the difference getting posted into Gain/Loss.
Accounting is also generated for an 'Expired' lease when the Process Lease
Accounting for Lease Expiration is run. This closes out the balances in Right of Use
and Accumulated Amortization account.
Default Accounts
Default Accounts can be provided on the Payment Templates. When a payment is created out of payment templates,
these accounts flow to the lease and from lease to Subledger Accounting engine on the cloud for transaction accounting.
Following Default Accounts are provided:
a. Right of Use—ROU account. Mandatory for Lease Booking
b. Lease Liability—Lease Liability account. Mandatory for Lease Booking
c. Reserve---Reserve is used whenever ROU amount is not same as Lease Liability amount
d. Interest Expense- Interest Expense account is needed to capture interest expense accrual in IFRS1 , and it is
included into Lease Expense in ASC 42. Mandatory for IFRS1
e. Amortization Expense- Amortization Expense (equivalent of Depreciation Charge) account is needed to capture
Amortization Expense accrual in IFRS1 , and it is included into Lease Expense in ASC 42. Mandatory for ASC 42.
f. Accumulated Amortization: Amortization Expense is piled up into this account. Mandatory account for Lease
Expense accounting event.
g. Lease Expense- ASC 42 Lease Expense Account. Mandatory account for ASC 42.
h. Non-Compliance Expense- Charge account for the non-compliance expense (no liability/ROU checkboxes). This
account is used on non-compliance invoices on the expense distribution when it reaches AP. Mandatory account if
AP setup does not have ‘Expense’ account defined in setups.
i. Payables Clearing: For Compliance payments, this account is used as offset for creating temporary AP Liability
charge. This is a mandatory account for Lease Payments Approval event
j. Payables Liability- AP Liability which is used on the credit side of AP Invoice. FLA send this account on the invoices
which are sourced from it. If AP setup does not have this account, then this account needs to be necessarily defined
on Payment.
k. Gain/Loss: For all Terminations and Scope Decrease Amendments, FLA calculates gain/loss
l. Forex Gain/Loss: This account is used during ‘Revision’ transactions for revaluation of ‘ROU’ for forex transactions.
FLA’s default accounting is being captured below for each of the accounting standards and users can override this through
SLA configuration if there is a need to do that.
 IFRS16
ROU(Yes), Liability(Yes) ROU(Yes), Liability(No) ROU(No), Liability(Yes) ROU(No), Liability(No)
Event( Dr Cr Dr Cr Dr Cr Dr Cr
Booking ROU Lease Liability ROU Reserve Reserve Lease No No Accounting
Liability Accounting
Accruals (Periodical Amortization Accumulated Amortization Accumulated Interest Lease No No Accounting
Expenses) Expense Amortization Expense Amortization Expense Liability Accounting
Interest
Expense Lease Liability
Payment Approval Lease AP Clearing No No Lease AP Clearing No No Accounting
Liability Accounting Accounting Liability Accounting
AP Invoice AP Clearing AP Liability Reserve AP Liability AP Clearing AP Liability Non AP Liability
Compliance
Expense
Revision - Remeasurement ROU Lease Liability ROU Reserve Reserve Lease No No Accounting
Liability Accounting
Revision - Reduction Lease ROU Loss ROU Lease Gain No No Accounting
(Scope Decrease) Liability Liability Accounting
Loss (If Loss) Gain (If Gain)
Termination Lease ROU Loss ROU Lease Gain No No Accounting
Liability Liability Accounting
Loss (If Loss) Gain (If Gain)
Lease Accumulated ROU Accumulated ROU No No No No Accounting
Expiration(Termination Amortization Amortization Accounting Accounting Accounting
Event)
Option Cancellation Lease ROU Loss ROU Lease Gain No No Accounting
Liability Liability Accounting
Loss (If Loss) Gain (If Gain)
 Option Exercise ROU Lease Liability ROU Reserve Reserve Lease No No Accounting
Liability Accounting
Lease ROU Loss ROU Lease Gain No No Accounting
Liability Liability Accounting
Loss (If Loss) Gain (If Gain)
For ASC 42, the below accounting is derived:
ASC842
Flags ROU(Yes), Liability(Yes) ROU(Yes), Liability(No) ROU(No), Liability(Yes) ROU(No), Liability(No)
Event Dr Cr Dr Cr Dr Cr Dr Cr
Booking ROU Lease Liability ROU Reserve Reserve Lease Liability No Accounting No
Accounting
Accruals(Periodical Expenses) Lease Expense Accumulated Lease Expense Accumulated Lease Lease Liability No Accounting No
Amortization Amortization Expense Accounting
Lease Expense Lease Liability
Payment Approval(FLA) Lease Liability AP Clearing No No Lease AP Clearing No Accounting No
Accounting Accounting Liability Accounting
AP Invoice AP Clearing AP Liability Reserve AP Liability AP Clearing AP Liability Non AP Liability
Compliance
Expense
Revision - Remeasurement ROU Lease Liability ROU Reserve Reserve Lease Liability No Accounting No
Accounting
Revision - Reduction (Scope Lease Liability ROU Loss ROU Lease Gain No Accounting No
Decrease) Liability Accounting
Loss(If Loss) Gain(If Gain)
Termination Lease Liability ROU Loss ROU Lease Gain No Accounting No
Liability Accounting
 Loss (If Loss) Gain (If Gain)
Lease Expiration(Termination Accumulated ROU Accumulated ROU No No No Accounting No
Event) Amortization Amortization Accounting Accounting Accounting
Option Cancellation Lease Liability ROU Loss ROU Lease Gain No Accounting No
Liability Accounting
Loss (If Loss) Gain (If Gain)
Option Exercise ROU Lease Liability ROU Reserve Reserve Lease Liability No Accounting No
Accounting
Lease Liability ROU Loss ROU Lease Gain No Accounting No
Liability Accounting
Loss (If Loss) Gain (If Gain)
Notes:
1 All the above mentioned accounting gets reversed in case the amounts are negative
2 The above accounting is for events that are solutioned till end of 21.C
3 Numbers in Forex currency are first accounted in entered currency and then converted to Functional currency
R le of Con e ion o F nc ional C enc o he han U e Ra e T pe
a Right of Use and Liability are initially converted using Forex Rates on Lease Amortization Start Date
b For migrated leases, ROU balances are converted using user provided rate
c Interest Expense is converted using period end date
d Amortization Expense is converted using initial ROU rate or if there is an amendment, using the Rate on
Amendment Commencement Rate from amendment date and onwards
e Payment Invoice processing uses rate on Invoice Due Date
f Outstanding unamortized ROU is revalued to latest Forex rate during every amendment with the
difference hitting Forex Gain/Loss
g During most of the amendments, expenses accrued and accounted for periods greater than amendment
commencement date are reversed and recreated. Hence accounting is reversed and recreated accordingly.
 h All expenses are transaction dated as period end date and Accounting Date is the transaction date or first
day of next open period
4 ASC 42 follows IFRS if the lease classification is Finance
Accounting Events
All the above accounting events are seeded and added to ‘Standard Accrual’ accounting method by Oracle. If you are using
a custom ‘Accounting Method’ you will need to add each of these accounting classes to your Accounting Method following
by activation of the accounting method and finally run ‘Update Subledger Accounting Options’ process with Lease
Accounting as parameter.
Navigation: Setup and Maintainence Manage Accounting Methods Set Scope to Lease Accounting Your Custom
Accounting Method Add Accounting Classes as shown in this screenshots:
Select your Accounting Method:
Add each of these Accounting Event Classes and Rule Set as below and then activate.
Please do not forget to run ‘Update Subledger Accounting Options’ ESS with Lease Accounting as parameter finally as
shown below:
In case you have Secondary ledger, please perform this action as well: