This guide outlines the steps to process capital, operating, and finance purchase leases.
Key Concepts
A Capital Lease or Operating Lease is a lease agreement in which the University executes a written contract with a vendor through Supply Chain Management (SCM) Procurement to purchase or rent real property with scheduled installment payments during the life of a contract. Title to the property remains with the lessor throughout the contract term. The University may have the right to take possession of the property at the end of the contract, or earlier, subject to payment of any outstanding principal and the buy-out amount specified in the contract.
Characteristics of a Lease
- Has specific beginning and ending dates
- Interest rate is stated and fixed for the life of the lease
- May have provisions for transfer of ownership upon completion of payments due on the lease and/or payment of the agreed buy out amount (sometimes this will be for $1 only)
- Lease is non-cancelable
Lease Types
If the total value of principal payments is $100,000 or more and the term is 12-months or more, the lease may be classified as a Capital Lease. A lease below $100,000 and/or shorter than 12-months is classified as an Operating Lease.
If the lease (greater than $100,000) transfers ownership at the end of the least, it is referred to as a Finance Lease Purchase.
Process Cycles
Below are the process cycles for each lease type (Finance Purchase, Capital, or Operating):
Finance Purchase Capital Lease ($100,000 or greater, longer than 12 months, and transfer of ownership)
- SCM Procurement approves the agreement and creates the Purchase Order which establishes the payment amounts, duration and interest.
- Department notifies Capital Accounting that a lease has been entered by contacting [emailprotected]
- Capital Accounting will assign Property Tag and track the equipment during the life of the lease
- Accounts Payable will process the invoice and record the expenditure in the proper account:
Description Principal Account Interest Account Cap lease - non-comp 57503 57504 Cap lease – computer 57501 57502 - Departments are required to ensure payments are made timely according to contractual schedule
Capital Lease ($100,000 or greater, longer than 12 months, and vendor retains ownership)
- SCM Procurement approves the agreement and creates the Purchase Order which establishes the payment amounts, duration and interest.
- Department notifies Capital Accounting that a lease has been entered by contacting [emailprotected]
- No Property Tag will be issued for vendor owned equipment
- Accounts Payable will process the invoice and record the expenditure in the proper account:
54101 - Leased Equipment Expense
Operating Lease (value below $100,000 and/or shorter than 12 months)
- Campus Procurement creates the Purchase Order which establishes the payment amounts, duration and interest.
- The equipment does not receive a property tag and is not counted during physical inventory
- Accounts Payable will process the invoice and record the expenditure in the proper account:
54101 - Leased Equipment Expense
Non-lease Repair and Maintenance Contract
This is a contract for the repair and maintenance of equipment and is not considered a lease. Payments are charged to the following Account:
- 54051 – Repairs-equip/instr/vehicles
