Leases
So, where do the numbers come from?
You may want to see how Intacct calculates the numbers in the background. In this chapter, we will use a lease example and go over the basic steps of how they are calculated in Excel. After that, we will use the Lease Accounting module to enter the same lease and compare the results.
In Excel, this is a 10-step process, but we will cover the first 6 steps in the example:
Prepare Payment Schedule
Calculate Lease Liability
Adjust Lease Liability to Right-of-Use Asset (if applicable)
Create Lease Liability Schedule
Create RoU Asset Schedule
Summarize the expenses into periods
Post Initial Recognition GL Entry
Pay the Lessor every month
Post Interest Expense every month
Post Depreciation Expense every month
In Intacct, this is only a 5-step process. In our video, we will cover the first three:
Create Lease
Generate Payment Schedules
Generate Schedules (Lease Liability & RoU)
Put in Service
Wait for e-mails to let you know Payment Entries and/or Journal Entries have been posted
If you would like to follow the IFRS or US GAAP Finance Lease, please watch this video. Here is the link for the accompanying spreadsheet.
If you would like to follow the US GAAP Operating Lease example, please watch this video. Here is the link for the accompanying spreadsheet.
Why you can’t divide an annual compounded rate
Because the interest is compounded, not applied evenly. With compounding, interest is added to your balance each period, and then future interest is calculated on the new, higher balance. This means the growth builds on itself over time.
If we divide an annual rate by the number of periods, we are assuming interest grows in a straight line:
Simple division (incorrect for compounding):
\[ \text{Monthly rate (incorrect)} = \frac{\text{Annual rate}}{12} \] \[ \text{Daily rate (incorrect)} = \frac{\text{Annual rate}}{365} \]This works only for simple (non-compounding) interest, not compounded interest.
Correct formula for a compounded period rate:
\[ \text{Period rate} = (1 + \text{Annual rate})^{\frac{1}{n}} - 1 \]Where \(n\) is the number of periods (e.g., \(12\) for months or \(365\) for days).
Monthly and daily versions:
\[ \text{Monthly rate} = (1 + r)^{\frac{1}{12}} - 1 \] \[ \text{Daily rate} = (1 + r)^{\frac{1}{365}} - 1 \]That daily rate is used by Sage Intacct Lease Accounting to calcualte Interest.
This formula ensures that when the period rates are applied and compounded over time, they match the stated annual rate:
\[
(1 + \text{Period rate})^{n} = 1 + \text{Annual rate}
\]
Takeaway
Because interest is compounded, each period builds on the previous one. So instead of dividing the annual rate, Sage Intacct Lease Accounting calculates a smaller rate that grows step by step to exactly match the annual rate over time.