Lease Accounting in Fusion Financials Video#4 of 4

Summary

This video concludes the series on lease accounting in Fusion Financials, detailing the financial elements and accounting processes involved. It reviews the lease creation, focusing on three payment types: rent, security deposit, and insurance. The presenter explains how to calculate opening liabilities and present values, emphasizing monthly depreciation of the right of use asset. Key accounting steps are highlighted, including lease booking, interest expense accrual, and lease payment processing. By breaking down these components, the video aims to provide a comprehensive understanding of effective lease accounting practices.

Takeaways

• 😀 This video is the fourth and final installment in the lease accounting series using Fusion Financials.
• 📊 An Excel file is introduced, containing essential financial details for lease accounting, including different payment types.
• 💰 The lease includes three payment types: rent, security deposit, and insurance, each with specific accounting implications.
• 🔍 The monthly rent payment of 10,000 currency units totals 120,000 annually, with a present value calculated at approximately 114,900.47 currency units.
• 🏢 The security deposit is a one-time upfront payment of 80,000 currency units, treated differently from regular payment liabilities.
• 📅 Lease liability calculations include opening liability, interest expense, monthly payments, and closing liability for accurate accounting.
• 📚 The accounting process involves three main steps: lease booking, interest expense recognition, and lease payment approval.
• 📈 During lease booking, assets are debited and liabilities credited, ensuring accurate representation of the lease on financial statements.
• 🔗 Monthly interest expenses are calculated based on the opening liability, and amortization entries are created for asset depreciation.
• 🧾 Payment processing results in payable invoices, with entries made for lease liability adjustments and clearing accounts.

Q & A

What is the main focus of the video series on lease accounting?

The series focuses on lease accounting in Fusion Financials, covering the process of lease creation, payment schedules, and the associated financial elements.

How many types of payments are discussed in the lease accounting video?

Three types of payments are discussed: rent, security deposit, and insurance.

What is the present value of future cash flows for a monthly rental payment of 10,000 currency units?

The present value of the future cash flows for a monthly payment of 10,000 currency units, calculated with a 10% cost of capital, is approximately 114,900.47 currency units.

What does 'opening liability' refer to in lease accounting?

'Opening liability' refers to the amount the lessee is obligated to pay to the vendor for the lease, representing the present value of all future cash outflows.

How is the interest expense calculated for the lease?

The interest expense is calculated based on the opening liability for the month and the applicable interest rate.

What is the role of amortization in lease accounting?

Amortization represents the systematic reduction of the right of use asset over the lease term, reflecting the consumption of the asset's value.

Why is the security deposit not considered part of the lease liability?

The security deposit is paid in advance and does not represent a future cash outflow; hence, it is included in the right of use asset but excluded from the lease liability.

What are the steps involved in creating the accounting entries for lease payments?

The steps include booking the lease, creating interest expenses, and processing lease payments, with specific accounting entries for each step.

What happens to the accounting when a lease payment is made?

When a lease payment is made, the lease liability is debited, and a clearing account is credited to reflect the payment in the financial records.

What types of accounting entries are created for lease expenses?

The accounting entries for lease expenses typically include debiting interest expense and amortization accounts while crediting the lease liability and accumulated depreciation accounts.