Types of Leases in Oracle FLA

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There are different types of leases that we can record in the Oracle FLA(Fusion Lease Accounting) module. 

FLA is a separate module under Finance suit which is used to manage leases. Oracle Lease Accounting has the key features of lease creation, generating amortization schedules, and maintaining accounting balances.

It generates the balances required as specified by IFRS16 and ASC842 guidelines. ASC842 is nothing but US GAAP and IFRS16 is international GAAP.

A lease is a contract where a party (the lessee) gains the right to use an asset owned by another party (the lessor) for a specific period. Here we have two parties.

  • Lessor: The owner of the asset who grants the use of the asset. 
  • Lessee: The party who uses the asset and makes payments to the lessor. 

There are two types of Leases.

Expense Lease

An "expense lease" refers to the cost recorded by a lessee for using an asset that is not owned but rather leased. An expense lease involves a company paying to use an asset (like renting a property), leading to lease expenses recognized on the income statement.

Example: A business renting an office space for its operations. 

Revenue Lease

Revenue lease involves a company providing an asset for others to use, generating rental income recognized as revenue, often involving invoices for the customers who pay.

  • Example: A real estate company leasing out a property it owns to tenants. 

Expense Lease is integrated with AP module while Revenue lease is integrated with AR module.


An expense lease is further classified into three

Operating Leases:

This type of lease is treated as a rental agreement for a specified period, with the asset remaining on the lessor's books. The accounting treatment for operating leases also involves recording a right-of-use (ROU) asset and lease liability on the lessee's balance sheet under current accounting standards like ASC 842, but the expense recognition is different from finance leases.


Finance Leases:

A financial lease is a long-term agreement where the lessee gains the right to use an asset while the legal ownership remains with the lessor. The lessee assumes most of the risks and rewards of ownership, including maintenance and depreciation. It is often used by businesses for machinery, vehicles, or equipment.

This type of lease is accounted for as an asset and a corresponding lease liability on the balance sheet.


Exempt Lease

Exempt lease means short term lease that is less than a year term. Don’t book them on Balance Sheet.

No accounting is done is Lease module, everything is done inside AP module.

Non-Compliance expense account is used as expense because it is not compliant with the ROU and Lease Liability Concepts of ACS 842.

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