Tl;dr:
Cradle's calculations are done daily because:
For a detailed comparison of the calculations, refer here.
It is more accurate: If the calculations aren't daily, compromises must be made. For example, how is a mid-month fixed payment increase handled? Or a lease that terminates mid-month. With a monthly calculation, it's very hard to get the calculation of interest consistent with the contractual terms.
It's flexible: Cradle can handle payments that fall on any day and lease terms of any length with daily calculations.
Modification accounting: If the calculations aren't done daily, how do you handle mid-month modification accounting?
Robust reporting: Because the calculations are daily, you can run reports at any point in time. Want to know the lease liability value mid-month? With daily calculations, you can have the exact value.
From a user's perspective, it makes no difference. All reports can be run monthly.
If Cradle's calculations weren't daily, it would raise concerns about the software's ability to handle the requirements of your lease portfolio.
How do daily calculations differ from monthly?
When calculating the lease liability and right of use asset, very few companies perform daily calculations and usually calculate the lease liability balance using Excel's "NPV" function.
So how does this differ from Cradle's calculations?
The present value of the lease liability will be different as the "NPV" function in Microsoft Excel does not consider the timing of the payments. Cradle uses the equivalent of the "XNPV" in Excel. For more details, refer to this article How to Calculate the Present Value of Future Lease Payments.
Daily calculation of depreciation/amortization compared to monthly: Depreciation/amortization will be calculated each month instead of each day. Because of this, with daily calculations, February will incur less depreciation/amortization with 28 days than March with 31 days. In contrast, a monthly calculation methodology will incur the same depreciation/amortization for each month.
Calculation of interest: With a monthly calculation, compromises will need to be made when calculating interest. The calculation comparison highlights this.
Monthly calculations can't handle mid-month payments.
How is it similar to Cradle's calculations:
Each payment will reduce the balance of the lease liability.
All balances, such as the lease liability, will unwind to zero.
Both will provide the balances at month-end.
It's materially consistent.
For an example of a monthly lease liability amortization schedule, refer here. For a daily example, refer here. For a comparison of the two calculations, refer here.
It's been tested:
We have audit firms worldwide—including all of the big 4—continue to audit our calculations. We have yet to have one query raised.
Summary
Due to the compromises in accuracy, Cradle does not perform monthly calculations but instead daily.