Set Up Lease Accounting for Your First Measurement

Before a lease can be measured, five Setup pieces must exist: a chart of accounts, a published chart of accounts mapping, a reporting entity that selects them, a discount-rate record for each transactional currency, and a published policy election set for each accounting standard the entity reports under. If you use transactional currencies other than the functional currency, each also needs an exchange-rate definition. This article walks through the setup; the lease-side steps of publishing and measuring are covered in Publish Your First Measurement.

Setup access is required. All of these pages live in Setup, which you open from the bottom of the sidebar.

Create a chart of accounts

The chart holds the GL accounts your journal entries code to.

1. Open Setup → Accounting → Charts of Accounts and choose New chart of accounts.

2. Enter the required Name and Effective Date. End Date is optional.

3. Open the chart's GL Accounts area and choose Add GL account.

4. Enter the required Number, Name, and Type. The number must be unique within the chart.

Create and publish a chart of accounts mapping

A mapping belongs to one chart of accounts and maps lease-accounting treatment rows to GL accounts in that chart. It has separate ASC 842 and IFRS 16 tabs, so one mapping serves both standards. The reporting entity selects the mapping, and the GL account rows are used to resolve accounts when journal entries are derived.

1. From the chart of accounts, open Mappings and choose Add mapping.

2. Complete the wizard's Name & Settings and Mappings steps. Mapping Name is required.

3. If you keep accounts by asset class, enable Do you have accounts by asset class? and choose an Asset Class Group, which becomes required.

4. Set Do you do ASC 842 accounting by Obligation Type? as your accounting requires.

5. Choose Publish when at least one row has a GL account.

Individual rows can stay unmapped while you work, but publishing is blocked until at least one GL account is mapped, with the warning No Accounts Mapped: "Map at least one GL account before publishing. A published mapping cannot be edited, and one with no accounts resolves nothing." Published mappings are read-only.

Create a reporting entity

The reporting entity is what accounting is reported for, and it ties the pieces together: it selects a published chart of accounts mapping, and requires a functional currency, a fiscal calendar, and a published policy election set for each selected standard. Full steps are in Set Up Legal and Reporting Entities.

Add discount rates

Each discount-rate election in a policy election set selects a record from Setup → Lists → Discount Rates, and a record is required for every transactional currency (and for every asset-class and currency combination when elections are by asset class). Create the records before you build the set.

1. Open Setup → Lists → Discount Rates and add a rate record for each currency, with a Name, Type (Incremental Borrowing Rate or Risk-Free Rate Election), Currency, Tenors (Years), Source, and a required Effective Date; End Date is optional.

2. On the record's Curves tab, choose Add curve and enter an Effective Date with a rate for each tenor, entered as a percentage. Import curves and Download curves are also available on the tab.

3. Select the record in the policy election set's Discount Rate Elections for the currencies it covers.

Built-in system rates can't be edited or deleted, and their curves are read-only; the Ownership filter separates your records (Mine) from System records. Measurement uses the latest curve date on or before the measurement date. If no curve is in effect for a currency, its rate shows as Rate Unavailable on the lease, and the measurement can't advance until you enter a custom rate or configure a curve.

Create and publish a policy election set for each standard

Each accounting standard a reporting entity reports under needs its own published policy election set, and you can create one right from the reporting entity's standard selector or from the Policy Election Sets page. When created from the entity selector, the standard and functional currency are preset; created standalone, you choose the Accounting Standard and the Functional Currency, which defaults to USD.

1. Open Setup → Accounting → Policy Election Sets and choose New policy election set.

2. In Name & Settings, enter Name and the required Adoption Date, and confirm the standard and Functional Currency.

3. Set Transactional Currencies, which requires at least one currency and defaults to the functional currency. Optionally enable Policy Elections by Asset Class.

4. In Elections, set Discount Rate Elections: a Discount Rate record from Discount Rates for every transactional currency, or for every asset-class and currency combination when elections are by asset class. The rate record can be an Incremental Borrowing Rate or a Risk-Free Rate Election; public reporting entities cannot use risk-free rates.

5. Set the remaining elections for the standard: Short Term Lease Election, Combination of Lease and Non-Lease Components (Combine or Separate), Portfolio Approach, and, under ASC 842, Materiality/Capitalization Threshold and Lease Classification Test Defaults (the Economic Life Criteria Percentage and the Fair Value Criteria Percentage both carry defaults). Under IFRS 16, Apply the Low-Value Exemption? requires a threshold for each transactional currency.

6. Set the required Tenor Interpolation Method, Tenor Extrapolation Method, and Rounding Decimals (default 2), then Publish.

Save Draft keeps the set editable. Published sets open read-only, so replicate a published set into a draft when you need a new version.

Add exchange rates for foreign currencies

If a transactional currency differs from the reporting entity's functional currency, its policy election set requires an active exchange-rate definition for that currency pair. Exchange rates are defined once in Setup and reused by every set that needs the pair.

1. Open Setup → Lists → Exchange Rates and choose New exchange rate.

2. Enter the required Name, Base Currency, Target Currency, and Frequency Calendar. The target must differ from the base, and Active? defaults on. Publisher, URL, and Note are optional.

3. On the rate record, choose Add value and enter an Effective Date and a positive Rate. Dates must be unique for the rate and cannot be future-dated.

4. Select this rate definition in the policy election set for the currency pair it covers.

A rate definition that lacks dated values for a period surfaces as an issue when journal entries are derived for that period, not when the measurement is published.

Measure your first lease

Once the setup above is in place, publish the lease, establish its book under a standard, and publish the measurement to produce the lease liability and ROU asset. Publish Your First Measurement walks through that workflow.