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Administrator Guide
Last Updated: 2023-06-23
Concept: Lease Accounting

Concept: Lease Accounting

Lease accounting enables you to recognize the lease liabilities and right of use (ROU) assets of your lease contracts. You need to record your lease liabilities and right of use (ROU) assets on financial statements when you operate in:
  • Countries that follow U.S. GAAP or IFRS accounting standards.
  • Public sectors that follow standards created by GASB.

Contract Types and Accounting Methods

Workday enables you to create lease contract types that you can use on a supplier contract to represent your lease contracts. Workday treats lease-type supplier contracts differently than supplier contracts by generating an initial recognition journal and expense recognition schedule. Lease-type supplier contracts also automatically generate a supplier invoice, instead of requiring manual creation of invoices.
You can create 3 kinds of lease-type supplier contracts:
  • Financial leases.
  • Operating leases.
  • Short-term operating leases.
You can only configure contracts with a term of 1 year or less as short-term operating leases. Short-term operating leases differ from regular leases in that you can't:
  • Create an alternate contract.
  • Generate an initial recognition journal.
  • Track the lease as a business asset.
When you create an operating lease, you must also select an accounting method:
Accounting Method
Usage
ROU Asset Depreciation Expense
Helps you represent your operating lease as a depreciating ROU asset. Workday treats this accounting method like a financial lease, requiring you to track and record the lease as a business asset. You might use this option when your organization needs to report under IFRS or U.S. GASB accounting standards.
ROU Asset Operating Expense
Helps you represent the terms of your operating lease as an operating expense. You might use this option when your organization needs to report under U.S. GAAP.
Straight Line Expense
Helps you represent the terms of your original operating lease under the former accounting standards. Doesn't generate an initial recognition journal. You might use this option when your organization needs to provide retrospective reporting.

Expense Recognition Accounting

After you approve a lease-type supplier contract, you must create expense recognition accounting to generate journals. You can create expense recognition accounting from:
  • The
    Create Expense Recognition Accounting
     related action on an expense recognition installment.
  • The
    Create Expense Recognition Accounting
     task.
  • The
    Schedule Expense Recognition Accounting
     task.

Alternate Lease-Type Supplier Contracts

You can create alternate lease-type supplier contracts from your operating leases to generate financial statements for both the current and former lease accounting standards.
You can't directly amend alternate lease-type supplier contracts. However, when you amend an original lease-type supplier contract, you can update the interest rate of an alternate contract. You can only update the interest rate when the alternate contract doesn't use the straight line expense accounting method.

Amendments

You can create amendments to your lease-type supplier contracts to change the contract terms. Amendments require you to specify an amendment type that can be either:
  • Lease Extension
  • Non-CPI Payment Change
Before you can create an amendment, you must fulfill these conditions on your contract:
  • Approve the original and associated alternate contracts.
  • Receive all contract lines with depreciating assets.
  • Register all contract lines with depreciating assets.
  • Ensure the initial recognition journal has a status of
    Posted
    .