For new leases, for which WashU is the Tenant/Lessor, with a term of greater than 12 months that have not yet been established as a lease supplier contract in Workday, please complete the New Lease Data Collection Form.
Lease Accounting Standard
The University accounts for leases under Accounting Standards Codification (ASC) 842 Leases, the accounting standard that require leases with a term longer than 12 months to be recorded on the Statements of Financial Position. Under ASC 842, qualifying leases must record, at present value of future lease payments, a lease liability representing WashU’s obligation to make lease payments and a right-of-use (ROU) asset representing its right to use the asset for the lease term. For leases that qualify under this methodology, lease expense is recognized in equal amounts over the life of the lease, the ROU asset is amortized over the life of the lease, and lease payments are applied as a reduction of the liability. Leases with a term of 12 months or less are not accounted for under this method, but rather lease payments are expensed as incurred.
Leases in Workday
Workday provides functionality to capture the required accounting entries for leases with a term of greater than 12 months using the details provided in the lease supplier contracts. Workday automatically generates the entries each month to:
Recognize straight-line lease expense
Amortize any tenant improvement allowance
Record interest accretion on the lease liability
Reduce the lease liability for each supplier invoice
Adjust the ROU Asset to the carrying amount of the lease liability less the unamortized balance of tenant improvement allowance (if applicable).
Accounting Entries
When a lease contract is created, Workday posts the “Initial Recognition of a Lease”. Entries are either:
No Deferred Tenant Allowance:
Asset Ledger Account: 17000 ROU Leased Asset
Dr. xxx
Liability Ledger Account: 25900 Lease Liability
Cr. (xxx)
b. With Deferred Tenant Allowance:
Asset Ledger Account: 17000 ROU Leased Asset
Dr. xxx
Liability Ledger Account: 26700 ROU Leased Asset Incentive Contra
Dr. xxx
Liability Ledger Account: 25900 Lease Liability
Cr. (xxx)
c. To capitalize the Tenant Improvement Allowance (if applicable), Property Accounting will then post:
Asset Ledger Account: Fixed Assets
Dr. xxx
Liability Ledger Account: 26700 ROU Leased Asset Incentive Contra
Cr. (xxx)
When the Lease Contract Supplier Invoice is approved each month, Workday posts the Supplier Invoice as:
Liability Ledger Account: 25900 Lease Liability
Dr. xxx
Liability Ledger Account: 20000 A/P – Trade
Cr. (xxx)
The Supplier Invoice, which should be edited to agree to what the Landlord expects to receive, does not impact lease expense.
At the end of each month, Workday will automatically generate the “Expense Recognition”, posting:
Lease expense is recognized on a straight-line basis. The amount of expense recognized will be the same every month throughout the entire lease term. For example: A three year lease with payments totaling $10,000 in year 1, $12,000 in year 2, and $14,000 in year 3, would recognize the same $12,000 in expense each year (($10,000 + $12,000 + $14,000)/3).
b. Interest Accretion:
Asset Ledger Account: 17000 ROU Asset
Dr. xxx
Liability Ledger Account: 25900 Lease Liability
Cr. (xxx)
Represents the interest that, at lease inception, the lessee would have incurred to borrow the funds necessary to purchase the leased asset.
c. Amortization of the Deferred Tenant Allowance (if applicable):