TrailMix: Strategizing general ledger mapping layout, the Net Investment components and Lease Types

Part 2 of 3 (Read Part 1)

Accurate and efficient month-end reporting hinges on the ability to categorize and manage different types of leases effectively and mapping that to your general ledger for financial reporting purposes. In the second installment of our series, we focus on the importance of segregating your general ledger accounts using your different Lease Types and how that ultimately impacts your reconciliation process. Understanding the nuances and specific requirements of each Lease Type is crucial for ensuring compliance and accuracy in financial reporting. By the end of this installment, you'll have a clearer understanding of how to optimize your reconciliation process through effective Lease Type segregation and how that ultimately plays a large part in your monthly reconciliation procedures.

As stated in Part 1, we’re offering these strategies by explaining steps using Solifi’s Portfolio Management system. If you use a different lease accounting portfolio software, the terms/nomenclature may be different, but the concepts should still apply.

Setting up your chart of accounts by Lease Type will be the most efficient and transparent strategy.

• This strategy will provide the following audiences with an efficient way to understand and analyze your financial statements: parent company, management, lenders, funding sources and accounting staff.
• Remember that you can always run every report using the many different reporting codes you will be using at contract booking, i.e., Region Code or Product Line, to analyze your portfolio.

An important piece of this portfolio segregation strategy is to run all your portfolio reports by Lease Type and save them using the same format each month in separate, monthly folders for ease of revisiting them and sharing with auditors, etc.

Setting up your reconciliation to capture all the activities in your portfolio during the month starts with Lease Type and ends with the set-up of your portfolio reconciliation spreadsheet, which we will be talking about in Part 3, Reconciliation of the Components of Net Investment.

The following Net Investment components need to be captured in your reconciliation roll forward with the monthly changes as indicated:

• Contract Balance Remaining (CBR) – changes from new contract bookings, payment applications, restructuring, floating rate adjustments and dispositions.
• Unearned Finance Income – changes from new contract bookings, restructuring, month-end income process, floating rate adjustments and dispositions.
• IDC – changes from new contract bookings, restructuring, month-end income process and dispositions.
• Unamortized IDC – changes from new contract bookings, restructuring, month-end income process and dispositions.
• Residual – changes from new contract bookings, restructuring, month-end income process and dispositions.
• Unearned Residual – changes from new contract bookings, restructuring, month-end income process and dispositions.

The above components comprise the “Net Investment Balance” for each contract, as reported on the Net Investment Trial Balance Report.

If you segregate your portfolio by Lease Type, you will quickly visualize your portfolio balances to your general ledger and ultimately your financial statements.