Setting up an agreement
A new agreement opens a five-step setup. “Next” on the first step saves it as a draft, and later steps save as you edit. Opening a draft continues its setup if you can edit sales; anyone else sees its page.Lifecycle
Units and the fleet
The agreement is laid out like a sales order. Its units are listed down the left; select one to open its own page, with its status, its “Deliver”, “Return”, “Sell to Customer” and remove actions, its rates and accounting treatment, and its own charges and billing periods. The agreement’s ID in the header opens the agreement as a whole: its units with their rates and status, then what has been billed, what is unbilled, the monthly rent, the deposit and what falls due next, then how the units will be accounted for, and every charge, billing period and deposit. The terms (customer, dates, billing cycle and timing, payment terms, currency, deposit, tax and the accounting-treatment inputs) are in the Properties panel on the right, editable while the agreement is a draft. Each unit on the agreement moves through its own status: “Pending” until delivered, “On Rent” once delivered, then “Returned”, or “Sold” when the customer buys a unit treated as a sale on its purchase option. The Fleet register reflects the same thing from the asset’s side: a unit on a draft or an undelivered line reads Reserved, a delivered one reads , and a unit can only be on one live agreement at a time.- “Add Unit”, at the foot of the units list while the agreement is a draft, lists fleet units that are Available right now. Choose its “Rate Frequency” (Daily, Weekly or Monthly); its “Rate” fills in from the rates on file and can be changed.
- “Deliver” marks a pending unit on an active agreement as delivered to the customer today and puts it on rent. It is refused while the unit is out of service. It needs sales update permission.
- “Return” opens a form for the unit: the “Return Date” (never later than today), a “Meter Reading” and “Return Notes”. Turn on “Take out of service” with an “Out of Service Reason” and the unit goes to maintenance instead of back to available. A unit treated as a sale also asks where it goes in “Return To”.
Rates
Each unit on an agreement has one , Daily, Weekly or Monthly, and one “Rate” for it. That rate is what the unit bills, and what its accounting treatment is valued on. It belongs to the unit on that agreement, so two units of the same item can rent at different rates, and it can be changed on the unit’s page while the agreement is a draft. When you choose a unit or change its frequency, the rate starts from the first of these that has a rate for that frequency, in effect on the agreement’s “Start Date”:- The customer’s rates. On the part’s Sales tab, the “Customer Rental Rates” card holds rates agreed with one customer, or with every customer of a “Customer Type”, each with an optional “Valid From” and “Valid To”.
- The customer type’s rates, from the same card.
- The item’s rates, in the “Rental Rates” card on the same tab.
On a Calendar Month agreement each period is a calendar month, with a part month first and last. A Monthly unit bills its rate times the days used divided by the days in that month: at 1,500 a month, a start on October 15 bills 17 of 31 days, 822.58, and a full month bills 1,500. A Daily unit bills the days in the period, and a Weekly unit the whole weeks: at 500 a week, a 31-day period is five weeks, 2,500.
On a 28 Days agreement every period is 28 days from the start date and a Monthly unit bills its rate once per period. The table above shows what a period of each length bills.
Billing
follow the “Billing Cycle” from the start date: Calendar Month or 28 Days. The “Billing Timing” decides when each one falls due: Advance on its first day, Arrears on its last. The Billing Periods section of the agreement shows every period with its days, frequency, amount, and invoice.- Fixed term. With an “End Date”, the whole term is cut at activation.
- Open-ended. Leave the end date empty and periods roll forward. Every billing pass cuts the periods up to the end of next month (Calendar Month) or 28 days ahead (28 Days), plus one more period after that.
- Holdover. A unit treated as a rental that is still out after the end date keeps billing at the same rate until it is returned. A unit treated as a sale never bills past its end date: activation cuts its periods only up to the end date, and the daily billing pass never rolls it forward.
- Return. On a unit treated as a rental, the unbilled period the return falls inside is cut to the return date, and unbilled periods after it are dropped. The billing of a unit treated as a sale is left alone.
Invoicing
A daily job invoices every billing period due on or before today (in the company’s timezone) and every charge dated on or before today. “Invoice” on an active agreement does the same on demand, for example right after adding a charge. What happens next follows the invoicing setting: the company default on Settings → Invoicing (“Recurring Invoices”, Post and email unless changed), or the agreement’s own “Invoicing” property.- Draft only: one draft invoice per agreement; a person reviews and posts it.
- Post: rent is posted automatically.
- Post and email: rent is posted and emailed to the agreement’s contact, with the PDF attached, from the company’s name, replying to the receivables email. It needs a contact with an email; without one the invoice is posted and marked “Not sent”.
- Post and send via Stripe: rent is posted and sent through your connected Stripe account, which emails it with a payment link. It needs Stripe connected and the billing customer linked to a Stripe customer; without them the invoice is posted and marked “Not sent”.
What posts to the ledger
Posting a rental invoice books receivables and tax as usual. For a unit treated as a rental, the revenue side depends on the line (a unit treated as a sale posts differently):
Rent never lands on Rental Income directly. The deferred part is scheduled across the days of its period, and the monthly recognition run moves it to Rental Income as the days pass. A rental agreement’s entries post in the revenue recognition run (Accounting → Closing → Revenue Recognition).
The same run accrues rent for days a unit was on rent in the month whose period has no posted invoice yet, the usual Arrears case: Dr Contract Assets, Cr Rental Income. The invoice clears the contract asset when it posts.
Deposits
A refundable deposit is a , not revenue. The agreement’s Deposits section shows the “Agreed deposit” and the payments made against it. On a Draft or Active agreement, “Record Deposit” opens a customer receipt prefilled with the customer, the agreement, and the agreed amount. On a “Payment from Customer”, “Deposit for” names the sales order or rental agreement the money secures, from that customer’s open sales orders and Draft or Active agreements. The receipt’s unapplied cash then posts to Customer Prepayments (2110) instead of on-account credit. Applying it to an invoice later moves it from Customer Prepayments to receivables. A “Refund to Customer” with “Refund deposit for” pays the balance back out of Customer Prepayments. That picker also lists closed agreements and orders that still hold a deposit.Accounting treatment
Activation decides each unit’s accounting treatment under ASC 842. It runs five tests, and a unit that meets any of them is treated as a Sale (a sales-type lease); a unit that meets none is treated as a Rental (an operating lease):
The two percentages come from the company’s lease policy. The lease payments are the rent, discounted at the agreement’s “Discount Rate (%)” in advance or in arrears as its billing timing says, plus the unit’s “Guaranteed Residual Value” and the when its exercise is reasonably certain.
The agreement’s terms sit in its “Accounting Treatment” section, and each unit’s fair value, economic life, and residual values sit in the “Accounting treatment inputs” section of the unit form. The agreement’s section shows the two treatments, Rental and Sale, with each test. The unit’s section shows that unit’s treatment with each test and the present values, marked “Preview” until activation stores the result.
A third treatment, a direct financing lease, is not offered: it needs a third party to guarantee the residual value, which a rental agreement has no input for.
“Override” on a draft agreement’s unit sets the treatment, Rental or Sale, by hand with a required “Reason”. It needs accounting update permission and is kept by activation in place of the tests’ answer. The unit keeps the reason, and when the audit log is enabled the change is also recorded there with the old and new values. Once the agreement is active the treatment is fixed.
Sales-type leases
A unit treated as a sale is a sales-type lease. Take a unit rented for 36 months at 1,000 a month in arrears, with a 6% discount rate, a fair value of 38,000, and a 5,000 purchase option that is reasonably certain. At commencement the rent is worth 32,871.02 and the option 4,178.22, so the lease payments are worth 37,049.24, or 97.5% of fair value. The unit is treated as a sale twice over: on the purchase option test and on the present value test.Commencement
A unit treated as a sale is sold to the lease when the agreement activates, not when it is delivered. Activation refuses such a unit without an end date or a fair value, one whose agreement starts before the month of activation, and one whose term is not a whole number of billing periods:- Calendar Month: the agreement starts on the first of a month and ends on the last day of a month, and the unit is Monthly.
- 28 Days: the term is a whole number of 28-day periods.
Cost of goods sold is the unit’s net book value less the present value of any unguaranteed residual. Lease revenue less that cost, 7,049.24 here, is the selling profit stored on the unit. The “Activate” confirmation previews this journal for every unit that would be treated as a sale.
The unit leaves the fleet. Its asset is Disposed by sale with a disposal record at net book value, so the Fleet register reads “Sold” from activation on, while the unit keeps its own status on the agreement. Its serial is consumed into the lease and tagged with the agreement and the customer.
Interest and invoicing
Activation also writes the lease’s interest schedule, one line per payment. In month 1 of the example the balance of 37,049.24 earns 185.25 of interest, the 1,000 payment repays 814.75 of principal, and the balance closes at 36,234.49. The last line absorbs rounding, so the term closes exactly on the purchase option plus residuals: 5,000.00 here. The revenue recognition run posts each line’s interest in its period: Dr Net Investment in Leases, Cr Interest Income – Leases. A line that earns no interest has nothing to post: every line of a lease at a zero discount rate, and the last line of an advance-billed lease that closes on zero. The invoices collect the balance:
The whole term of a unit treated as a sale is billed from the periods cut at activation, and nothing past the end date is ever billed. It never gets an early-return credit.
End of the term
- “Sell to Customer” appears in the row menu of a unit treated as a sale that is on rent when the agreement has a purchase option. It bills a purchase option charge dated today and drafts its invoice. Before the agreement’s end date the action is refused: exercising earlier is an early termination, which is a manual journal. Posting that invoice marks the unit “Sold”; voiding it puts the unit back on rent. It needs sales create and update and invoicing create permission, and bills the option only once.
- Return the unit on or after the end date. The return form asks where it goes in “Return To”: Rental fleet, as a new fleet asset or Inventory, as finished goods, and it cannot be submitted until you choose. The unit goes into stock, or becomes a fleet asset, at the receipt’s location. The closing net investment moves with it (Dr the Rental Fleet class asset account or inventory, Cr Net Investment in Leases), and the fleet option creates a new asset at that cost depreciating from today. A unit returned to inventory keeps that cost: under FIFO or LIFO costing it is later sold or consumed at the closing net investment, not at the cost of the oldest stock.
With accounting enabled, this needs the Cost of Goods Sold or Lease Revenue account default mapped, whichever the settlement uses. Voiding the invoice reverses the settlement with the rest of the line.
Utilization
Accounting → Reports → Rental Utilization measures the fleet over a date range, per unit and per asset class:- Time utilization: on-rent days (delivery to return) divided by the days the unit was in the fleet during the range.
- Dollar utilization: rental income recognized in the range, annualized, divided by the unit’s acquisition cost. Posted charges count as income.
Net investment report
Accounting → Reports → Net Investment in Leases lists every commenced unit treated as a sale still on lease on the “As of” date: its net investment at commencement, the principal collected, the net investment now, the next interest, the payments still to come by fiscal year, and the residual and option expected at the end. A sold unit drops out. A schedule line’s principal counts as collected once the revenue recognition run has posted its interest, or once its date passes for a line that earns no interest. The report ties to the Net Investment in Leases balance when both the run and the rent invoices for the same months are posted. The report needs accounting view permission, and sales view to read the agreements.Lease policy
Settings → Accounting → Lease Classification holds the company’s lease policy. It needs settings update permission.- “Major Part of Economic Life (%)”: the lease term test’s threshold, 75 by default.
- “Substantially All of Fair Value (%)”: the present value test’s threshold, 90 by default.
- “Default Discount Rate (%)”: prefills “Discount Rate (%)” on a new agreement, 6 by default.