A Charge-off is a change key of a terminated or a paid-off lease having an activity status of either NCxx orNPxx into a designated deficiency portfolio. LeasePak treats the lease as a charge-off for credit bureau reporting purposes.
Early term charge-off of a lease that is not matured and has unpaid delinquent lease payments, and U0103 Payoff is not performed on it until the asset has been recovered and subsequently sold. The profits from the asset sale are then used in U0103 Payoff to process the payoff. Any deficiencies from this process are placed in the allowance of bad debt. The amount in the allowance for bad debt can be recognized as the deficiency balance that needs to be collected in the deficiency portfolio. The additional assessments that are assessed to the lease needs collections. The process of assessing these assessments works same as it is with U0105 Assessments.
The change key changes the lease from its current portfolio to a deficiency portfolio. The activity status on the lease will remain unchanged as either NCxx or NPxx.
It is third party software responsibility to assess the the deficiency balance and placing together a batch change key input file containing leases that needs to be change keyed to other portfolio (deficiency portfolio). A third party software is responsible to make sure that the deficiency balance is assessed in the old portfolio before the lease is change keyed into the new (deficiency) portfolio. Any assessments that are in the new (deficiency) portfolio will not be in the METRO2 Original Charge-off amount. The assessment process is required for change key process to capture the correct charge-off amount needed for METRO2 credit bureau reporting. LeasePak uses the batch change key input file to perform the change key. For change key to process these leases, there must not be any outstanding A/R (accounts receivable) on or before the payoff effective date.
In early term charge-off the balance of any uncollected assessments that have been assessed after the payoff will be waived automatically from the old portfolio and reassessed to the new portfolio which is a deficiency portfolio. The original invoice numbers will remain reserved. Any lease-level accrual-basis assessments will be charged-off to a new general ledger account EOT (End of Term) lease Gross Charge-offs if the deficiency portfolio is set to Y.
The full term charge-off is a charge-off of any uncollected post-termination charges, and the leases that have already reached to maturity level with all of the lease payments made and the assets have returned to inventory. These leases are processed using U0103 Termination and with additional post-termination assessments. The additional post-termination assessments are assessed to the lease and needs to be collected. If these assessments remain uncollected after a pre-determined amount of time, the assessments are charged-off and the lease is moved to a new portfolio which is a deficiency portfolio where the uncollected assessments are tracked and collected.
For charge-off the change key will change key from its current portfolio to a deficiency portfolio with the activity status on the leases unchanged as either of NCxx or NPxx. A third party software will need to put together a batch change key input file (after the pre-determined amount of time) containing leases that need to be change keyed to a deficiency portfolio. However, for change key to process the leases, there must not be any outstanding A/R (accounts receivable) on or before the termination effective date. Any open suspense or credit memos tied to a leases are not allowed.
The balance of uncollected post-termination assessments that have been assessed will be automatically waived from the non-deficiency portfolio and re-assessed to the deficiency portfolio. The original invoice numbers will be retained. Lease level accrual-basis assessments will be charged off to a general ledger account EOT lease Gross Charge-offs. This charge-off to a general ledger account is only possible when the destination portfolio has a field set to deficiency portfolio.
If a lease change key reversal is required, than the lease can be only reversed back to its original portfolio, company, region, and office. The following conditions must meet before change key reversal:
The following requirements must meet to complete the set-up for Charge-off.
To perform the charge-off process users must set up charge of as described above and follow the following steps to process charge-off.
NOTE: Operating leases are not supported for Charge-off.
The following general ledger entry is applicable to both Early Term and Full Term charged off Leases. Any uncollected accrual basis assessments will include the following general ledger entry to charge off these assessment in the original portfolio as part of the change key processing. Any uncollected assessments will then be re-assessed in the deficiency portfolio.
| Debit | Credit |
| EOT LEASE GROSS CHARGE-OFFS (Name of Assessment) | ASSMT INC(Name of the assessment) |
NOTE: The above general ledger entry does not support sale and use tax on accrual basis.
The lease being changed keyed as a full term lease, there may be assets in inventory that have not yet been sold than the general ledger entries will be created to move the balance of any existing assets in inventory in the old portfolio to the general ledger account called CLEARING - CHANGE KEY to record these assets in inventory in the new portfolio. The CLEARING - CHANGE KEY general ledger account is similar to an income type general ledger account with the account being cleared each month during End of Period. This general ledger entry is only applicable when "Deficiency Portfolio" field is set to 'Y' in U0212 Portfolio.
| Debit | Credit |
| CLEARING - CHANGE KEY | INVENTORY |
| Debit | Credit |
| INVENTORY | CLEARING - CHANGE KEY |
NOTE: Operating lease type assets are not supported. To keep the data consistent from one portfolio to another portfolio, certain portfolio switches and settings will remain same.
For the leases with an activity status of either NCxx or NPxx, and having any un-disbursed use tax payable will be moved from the non-deficiency portfolio to the deficiency portfolio. The following general ledger entry reflects the change.
| Debit | Credit |
| USE TAX PAYABLE | CLEARING-CHANGE KEY |
| Debit | Credit |
| CLEARING-CHANGE KEY | USE TAX PAYABLE |
Following is a general ledger entry in the original portfolio once the lease is change keyed back. This general ledger entry is the reversal of the charge-off of any accrual-basis assessments that might have occurred. The charged-off amount being reversed is the same amount of the charge-off of the assessments when the charge-off occurs.
| Debit | Credit |
| ASSMT INC-(Name of Assessment) | EOT LEASE GROSS CHARGE-OFFS - (Name of the assessment) |
NOTE: This entry does not support sale and use tax on accrual basis.
For any existing assets in inventory which are tied to leases being change key reversed back to the original portfolio, the original inventory general ledger transaction will be reserved. The CLEARING-CHANGE KEY general ledger account works same as an income type general ledger account with the account being cleared each month during End of Period.
| Debit | Credit |
| CLEARING - CHANGE KEY | INVENTORY |
| Debit | Credit |
| INVENTORY | CLEARING - CHANGE KEY |
The following general ledger entry reflects that; if there are any un-disbursed use tax payable moved from the new portfolio to the old portfolio for a lease with an activity status of either NCxx or NPxx.
| Debit | Credit |
| USE TAX PAYABLE | CLEARING - CHANGE KEY |
| Debit | Credit |
| CLEARING - CHANGE KEY | USE TAX PAYABLE |
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