Contract Accounting

On the contract Accounting tab, you must define accounting information for the contract.

To define lessee contract accounting information:

Open the contract.
At the top of the contract, navigate to the Accounting tab. The following information can be defined in the Financing Terms section:
- Enter the nominal interest rate in the Contract Rate field if it is known. This rate can be given by the lessor to the lessee. If this value is provided, it will be used in present value of minimum lease payments (PVMLP) in most cases.
  Note: This field cannot be set if the contract is a non-lease service contract, short term lease, or low value lease (set in the Lease Type field).
- Select the Use IBR checkbox, if required. If the Contract Rate field was already set, then selecting this checkbox clears the Contract Rate value.
- If Provision accounts has been enabled and configured in Financial Organization Structure, select Use Provisioning to keep track of balances under the main accounting standard. The provision account keeps accruing balances on certain dates based on payment amounts, which are then reversed by the actual payment amount on the payment date. In this case, the classification is set to "Provisioning" automatically, and payments and accrual postings can be done from the Provision financial schedules. Note that if this is selected, the Contract Rate and Use IBR options are only used for the other accounting standards and classifications.
- Set the Compounding Frequency to represent how often the interest expense will be calculated. Note that the Compounding Frequency is typically the same as the Payment Frequency in the terms and conditions.
  Note: This field cannot be set if the contract is a short term lease or low value lease (set in the Lease Type field).
- The Embedded Derivative checkbox is only for informational purposes.
- Set the Calendar Type to one of the following options:
  - Regular Calendar: The application uses a regular calendar by default.
  - 360 Convention: This convention assumes a year contains 30 days in a month and 360 days a year.
  - Fiscal Variant: The application uses the Fiscal Variant configured for the company.
The Primary Cost Objects section allows you to set default values for the activation groups, that may then be overridden. These fields can only be set at contract inception. If the cost object must be changed after the contract is active, it must be done per unit.
- Select either Cost Center or Work Breakdown Structure (WBS). Once the cost object is selected, you can optionally set the Profit Center and/or Responsible Cost Center.
  - The Cost Center is an organizational unit within a controlling area that represents a defined location where cost is incurred.
  - The WBS field represents a model of the project that organises project tasks into a hierarchy. It can also be a cost collector for the corporation.
  - The Profit Center is an organizational unit that represents an area responsible for revenues and costs.
  - The Responsible Cost Center provides an additional layer of detail, allowing organisations to record secondary/related information regarding the expenses.
- If Cost Center Allocation has been enabled in the Financial Organization Structure, refer to Cost Center Allocation for more information.
The following optional fields can be set in the Other Cost Objects section if required:
- The Functional Area is used to analyze Cost of Sales Accounting. It allows you to analyze your organization’s expenses by functional area (such as Finance, Marketing, Production, and HR).
- The Business Area is used to differentiate transactions that come from different lines of business in a company.
- Set the values for Segment and Network as needed.
The Payable section contains the following information:
- The Contract Currency is populated from the contract Definition tab, and cannot be modified.
- The Generate Vendor Invoice checkbox determines how the payables areas are posted. Select this field to generate a rent document (i.e., interim invoice) against a vendor (Accounts Payable). The payment is only posted for the main accounting standard with one clearing document per ledger. Unselect this field to post to a Clearing account. Note that this field is set or cleared by default based on the configuration of the company code.
  If this checkbox is selected, the following information can also be set:
  - Payment Terms: Defines the payment terms (e.g., pay 60 days after receiving the invoice) defined for the contract. It can be different from the terms of payment of the Lessor (vendor).
  - Payment Block: Defines the payment block on open items for payment transactions.
  - Payment Method: Defines the method used for making payments based on the selected company code.
    Note: The Payment Terms, Payment Block, and Payment Method fields are sent in the posting documents for payment and charge postings to credit lines only.
  - Calculate Taxes: Select this checkbox to calculate Net taxes for all postings. Note that this option is only available if it has been enabled and configured in Financial Organization Structure.

To define lessor contract accounting information:

Open the contract.
At the top of the contract, navigate to the Accounting tab. The following information can be defined in the Financing Terms section:
- The Contract Rate and Compounding Frequency are not used for operating lessor contracts.
- Set the Calendar Type to one of the following options:
  - Regular Calendar: The application uses a regular calendar by default.
  - 360 Convention: This convention assumes a year contains 30 days in a month and 360 days a year.
  - Fiscal Variant: The application uses the Fiscal Variant configured for the company.
The Primary Cost Objects section allows you to set default values for the activation groups, that may then be overridden. These fields can only be set at contract inception. If the cost object must be changed after the contract is active, it must be done per unit
- Select either the default Cost Center or WBS. Once the cost object is selected, you can optionally set the Profit Center.
  - The Cost Center is an organizational unit within a controlling area that represents a defined location where cost is incurred.
  - The WBS (Work Breakdown Structure) field represents a model of the project that organises project tasks into a hierarchy. It can also be a cost collector for the corporation.
  - The Profit Center is an organizational unit that represents an area responsible for revenues and costs.
- If Cost Center Allocation has been enabled in the Financial Organization Structure, refer to Cost Center Allocation for more information.
The following optional fields can be set in the Other Cost Objects section if required:
- The Functional Area is used to analyze Cost of Sales Accounting. It allows you to analyze your organization’s expenses by functional area (such as Finance, Marketing, Production, and HR).
- The Business Area is used to differentiate transactions that come from different lines of business in a company.
- Set the values for Segment and Network as needed.
The Receivable section contains the following information:
- The Contract Currency is populated from the contract Definition tab, and cannot be modified.
- The Generate Customer Receipt checkbox determines how the payables areas are posted. Select this field to generate a rent document (i.e., interim invoice) against a vendor (Accounts Payable). The payment is only posted for the main accounting standard with one clearing document per ledger. Unselect this field to post payment documents for each accounting standard. Note that this field is set or cleared by default based on the configuration of the company code.
  If this checkbox is selected, the following information can also be set:
  - Payment Terms: Defines the payment terms (e.g., pay 60 days after receiving the invoice) defined for the contract. It can be different from the terms of payment of the Lessor (vendor).
  - Payment Block: Defines the type of payment block on open items for payment transactions.
  - Payment Method: Defines the method used for making payments based on the country that is linked to the selected company code.