Key takeaways
What this article covers, in order:
- Why this comes up / what goes wrong
- Step-by-step
- Example (fictional figures)
- Common mistakes
- Doing this in HelloBooks
- Frequently asked questions
Software for the new lease accounting standard helps small businesses comply with updated accounting rules by automating lease recognition, measurement, and reporting. This article covers why this need arises, step-by-step guidance to select suitable software, a worked example, common mistakes to avoid, and frequently asked questions.
Why this comes up / what goes wrong
Small business owners in India who lease assets such as office space, equipment, or vehicles must now follow the new lease accounting standard. This standard requires recognising lease liabilities and right-of-use assets on the balance sheet, which is more complex than previous disclosure-only requirements. Manual bookkeeping methods like spreadsheets, Tally, or bill books can make this process time-consuming and error-prone. Without proper software, businesses struggle with data entry, calculating lease amortisation, and generating compliant reports, leading to compliance risks and inefficient use of staff time.
Step-by-step
- Identify your lease portfolio: List all leases including terms, payment schedules, and renewal options. Check if your business has short-term leases or low-value assets, as some software offers simplified handling for these.
- Assess your current accounting setup: Determine if you use Excel, Tally, or another system. Check if the new lease accounting software integrates or exports data compatible with your current tools. This reduces duplicate data entry.
- Check software capabilities: Look for features like automated lease liability calculation, right-of-use asset tracking, amortisation schedules, and standard-compliant financial reports. Also, verify if it supports GST invoicing and reconciliation to streamline your overall accounting.
- Consider ease of data entry: Choose software that reduces manual input. For example, HelloBooks offers OCR for purchase bills, capturing supplier bills from photos or PDFs, which can save time in entering lease-related expenses.
- Evaluate reporting and compliance support: The software should generate reports compliant with Indian accounting standards and GST rules. It should simplify filing returns such as GSTR-1 and GSTR-3B.
- Review pricing and scalability: Ensure the software fits your budget and can handle business growth, such as adding more leases or users.
- Test with a trial or demo: Before finalising, use a trial to input sample leases and verify usability and accuracy.
For more on software choices, see our accounting software for small business and accounting software in India pages.
Example (fictional figures)
ABC Fitness Gym signed a 3-year lease for equipment on 01/04/2023 with annual payments of ₹1,20,000 payable at year-end. Using an assumed illustrative interest rate of 10%, calculate the lease liability and right-of-use asset at lease commencement.
- Year 1 payment discounted: ₹1,20,000 / (1 + 10%)^1 = ₹1,09,091
- Year 2 payment discounted: ₹1,20,000 / (1 + 10%)^2 = ₹99,174
- Year 3 payment discounted: ₹1,20,000 / (1 + 10%)^3 = ₹90,158
- Total lease liability = ₹1,09,091 + ₹99,174 + ₹90,158 = ₹2,98,423
This ₹2,98,423 is recorded as the right-of-use asset and lease liability on 01/04/2023.
ABC Gym then amortises the right-of-use asset and accrues interest expense on the lease liability annually.
Common mistakes
- Ignoring lease terms and renewal options: Prevent by thoroughly documenting all lease details before software input.
- Manual data entry errors: Prevent by using OCR features or software integrations to reduce typing.
- Not updating lease changes promptly: Prevent by scheduling regular reviews and updates in the software.
- Choosing software without GST compliance: Prevent by verifying that the software supports GST invoicing and filing requirements.
- Underestimating training needs: Prevent by allocating time for staff training on the new software.
For more on avoiding errors in bookkeeping, visit HelloBooks for India.
Doing this in HelloBooks
HelloBooks offers OCR for purchase bills, allowing you to capture supplier bills related to leases directly from photos or PDFs instead of manual entry. This helps reduce errors and saves time when managing lease expenses. You can learn more about this feature at /ocr-scanning.
Frequently asked questions
What is lease accounting software for gyms?
Lease accounting software for gyms helps track leases on equipment, space, or vehicles by automating calculations of lease liabilities and right-of-use assets. It simplifies compliance with accounting standards and GST rules, reducing manual effort for gym owners.
What should I look for in lease accounting standard software?
Look for automation of lease calculations, ease of data entry, integration with existing accounting tools, GST compliance, and reporting features. Also consider software that supports OCR to reduce manual input.
How does lease accounting software handle GST compliance?
Good lease accounting software integrates GST invoicing and filing features, helping you generate GST-compliant bills and file returns like GSTR-1 and GSTR-3B accurately and on time.
Can I use HelloBooks for lease accounting?
HelloBooks supports OCR for purchase bills which helps capture lease-related expenses efficiently. While it automates data entry, you should verify if it fully supports lease accounting standards or use it alongside specialised lease accounting tools.
Is lease accounting software different from regular accounting software?
Yes, lease accounting software specifically handles lease recognition, measurement, and reporting per new standards, whereas regular accounting software may not automate these lease-specific calculations.
Key takeaways
- New lease accounting standards require recognising lease liabilities and right-of-use assets.
- Choose software that automates lease calculations and integrates with your existing tools.
- Use OCR features like in HelloBooks to reduce manual data entry of lease expenses.
- Verify software supports GST invoicing and filing to ensure compliance.
- Regularly update lease data and train staff to avoid common mistakes.
Start on the Free plan (200 transactions a year, GSTR-1 and 3B filing for one GSTIN) at HelloBooks pricing to explore software that can simplify your lease accounting and overall bookkeeping.
