How do I classify this lease???  Is it a finance lease or an operating lease?  What do I need to record on my books?  The latest pronouncements have me so confused.  I know what to do, I’m going to ask D365 to help me figure this one out.

One lease, two lease, three lease, more.  What do I need to do to complete this chore?  First thing we need is the lease agreement with the specific information as to useful life, fair value, payment amount, length of contract and any other pertinent information that we can pull from the lease.

Next, we go into D365 and go to our asset leasing module.  Hint, if you do not see the asset leasing module then you need to enable the feature named asset leasing.

Once in asset leasing go to Leases > Lease summary, then click New

Now you can enter all the lease information directly from the lease agreement.  As you can see there are required fields, and not so required fields.  Don’t worry, if you forget a field D365 will let you know (commencement date is required, even though not in red).

Form in D365 to add a lease

Depending on setup you may be asked to fill in additional information.  For instance, if Pay to vendor is set to Yes on the lease books (Asset leasing > Setup > Lease books), then you will need a vendor account.

Add additional information in D365 lease

D365 Asset Leasing, The next steps.

All the pertinent information is now added to our lease, and the payment schedule lines have been created as well to mimic the lease document.  The payments in this case change from year to year, and over the 60 months we have the total outgoing payments all set up, taking the guesswork out of accounting and when they need to make changes.  Plus, the vendor will be paid according to the schedule set forth, what better way to manage this program.

Lease form in D365 complete

Next step is to click the create schedules button on the tab at the top of the page, this will then create all the necessary schedules for payment, liability, and asset along with initial recognition values.  Once completed we should receive an alert that all the schedules have been created. 

Click Books in the tab at the top of the page and look at the payment schedule, if all looks ok click confirm schedule.  As you can see the total lease payments along with the Present value of lease payments are located at the bottom of the screen.

lease schedule in D365 showing lease amount and current value

The Initial right-of-use asset along with the Initial lease liability are shown and confirmed by the payment schedule as the Present value of lease payments

Asset view of lease information in Dynamics 365

If you scroll down to the Lease classification test in the fast tabs, we can see that this lease is setup as a Finance lease under ASC 842 rules, taking our guess work out of the equation once and for all.

asset view in of lease in D365 showing lease type

D365 Asset Leasing Schedules

By clicking on the Liability amortization schedule, you can see the future of all payments, along with interest and new balances for each period, and a bit more scrolling to the right shows the short term and long term valuation as well, so you are sure to never have another issue for classification of the liability in the future.

Dynamics 365 Lease liability amortization schedule

Similarly, the Asset depreciation schedule will show the straight-line depreciation of the asset lease, over the course of the lease, providing the net book value after each month.

D365 lease asset depreciation schedule

The accounting team will enjoy this process as they can ditch their Excel spreadsheets and have all the leases in one place with D365 Asset Leasing module. You can reach out to Ellipse for more detila on this and many other topics anytime!

Please see more topics related to D365 on our blog page at https://ellipsesolutions.com/blog/

You may also enjoy reading Accounts Payable Invoice Register at Dynamics 365 Accounts Payable: Invoice Register Q&A | Ellipse Solutions or for Fixed Asset Acquisition please read the following Dynamics 365 for Finance and Operations: Fixed Asset Acquisition … There are Options! | Ellipse Solutions

For more information from Microsoft on D365 Asset Leasing.

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