Normalization of Payments/Billings

Prepared by :
CA Abhishek Jain
Functional Consultant - Finance
Overview of Normalization
Landlords can vary rent amounts over the life of a lease term for
the following reasons:
• Provide an incentive for the lessee
• Reflect the anticipated effects of inflation
• Ease the lessee's near term cash flow requirements

Normalization, also known as straight-lining, spreads the cost of

rent payments/billings and rent abatements over the life of a
lease to more accurately record the lease expense or revenue
during the time it was incurred.
 Need of Normalization
- Rent normalization is used to comply with FASB-13 standards.
• Landlords and tenants whose companies are publicly traded need to comply
with FASB-13 standards for accounting of leases.
• According to these rules, companies need to normalize or calculate the average
rent payments/billings over the term of the lease.
• These normalized amounts need to be reported as revenue/expense, along with
accrued revenue/liability, so that the investment community can accurately
analyse the company's financials.

- It provides you with detailed:

• Monthly deferred liability and
• Accrued asset amounts
that can be accessed by accounting and finance departments to
accurately calculate and estimate company-level revenue and
expenses.
Case for Rent Normalization: One Schedule Day for all Terms

This Case uses the following terms:

Lease begins on 1 January, 2012 and ends on 31 December, 2012.

Rent for the:

• first quarter is Rs. 1000;
• second quarter is Rs. 2000;
• third quarter is Rs. 3000,
• fourth quarter is Rs. 4000;
- Rent is scheduled to be paid in full at the beginning of every
month.
Enter Lease through following navigation
Enter Details Tab:

Enter Key Lease

Dates for 1 Year
Enter Locations Tab:
Enter Payments Tab:

Click On
Normalize
Check Box

Enter the period detail of each Quarter

Enter the rent amount of each Quarter

Finalize the Lease
After you enter the payment or billing term information in the lease, change
the lease status to final, and save the lease.

Oracle Property Manager runs the Schedules and Items concurrent program to
generate a payment schedule or billing schedule.

View Request
‘’Schedules and
Items’’
 Concurrent Program “Schedules and Items” :
• In this report average rent payments over the term of the lease are calculated. These
normalized amounts need to be reported as revenue/expense, along with accrued
revenue/liability.
• To calculate the average (normalized) amount for a term, Oracle Property Manager adds up all
the cash items for that term over the entire lease term, and divides this sum with the number
of months between the lease start and end dates.

• Actual Rent paid is transferred to GL through payables but adjustment entries (Normalized
lines) are transferred directly to GL by a concurrent program “Export Normalized Lines to GL”.
Approve the Payment Schedules as following :
Exporting to Payables Importing in Payables
After approving the After exporting payment lines from Oracle Property Manager
payment lines export import these lines in payables by a concurrent program
these lines to payables by “Payables Open Interface Import”
following the given route:
Output of concurrent program
“Payables Open Interface Import”
Query payment line in payables, validate same and create final
accounting

Validate Invoice
Now for transferring Normalized Lines to General Ledger run the
following request:
Accounting Entries in case of Normalization :
Amount which should be expensed in each period (i.e. Month) should be equal to Rs. 2500, for
that there are two types of accounting events:
1. Actual Expense Payment gets transferred through Oracle Payables and
2. Remaining normalized amount is directly transferred to General Ledger.
Following accounting entries takes place:
Accounting Entries for Cash Payments for Accounting Entries for Normalized lines for January
January 2012 2012
Account Debit (Rs.) Credit (Rs.) Account Debit (Rs.) Credit (Rs.)
Expense 1000 Expense 1500
Liability 1000 Accrued Liability 1500

Accounting Entries for Cash Payments for Accounting Entries for Normalized lines for July 2012
July 2012
Account Debit (Rs.) Credit (Rs.) Account Debit (Rs.) Credit (Rs.)
Expense 3000 Expense 500
Liability 3000 Accrued Liability 500

- As per the functionality of Normalization, in both the months the net amount which is
debited in Expense account is Rs. 2500, spreading the cost of rent payments over the life of a
lease to more accurately record the lease expense during the time it was incurred.
Points to Consider :
• Enter all terms, and be certain which terms you want to
normalize.
• You cannot have normalized payment terms for a lease
with a lease status of Month-to-Month or Holdover.
• If the lease starts or ends mid-month, the proration rule
specified at the Lease Details level is used to calculate
the number of months.
• Multi period accounting and normalization feature are
different.
1.The start date and end dates of the billing term defaults to the lease
commencement and lease termination dates. For billings that are not
normalized, the start date can be earlier than the commencement date of
the lease and the end date can be later than the termination date of the
lease. For normalized billings, the start and end dates must be within the
commencement and termination dates of the lease.

2. You cannot enter an estimated amount for a normalized billing.

3. invoice rule and accounting rule: These fields are disabled for normalized terms.
END