Accounting
ERP
Financial Management
GASB 87 Lease Accounting: How School Districts, Universities and Local Governments Apply It
Last updated: October 8, 2026 · Independent guide · We do not sell rankings or coverage.
GASB 87 requires state and local governments, including public school districts and public universities, to report almost every lease of more than 12 months on the statement of net position. A lessee records a lease liability and an intangible right-to-use lease asset, and a lessor records a lease receivable and a deferred inflow of resources. The Governmental Accounting Standards Board describes this as a single model based on the principle that leases are financings of the right to use an underlying asset (Ohio Auditor of State, Bulletin 2022-009, September 19, 2022).
The rule and the journal entries
A lessee measures the lease liability at the present value of payments expected during the lease term, less any lease incentives. The lease asset equals that liability plus payments made at or before commencement and certain initial direct costs. A lessor measures the lease receivable at the present value of payments it expects to receive, and the deferred inflow at the receivable plus any payments received at or before commencement that relate to future periods (Ohio Auditor of State). The table shows the entries on the economic resources basis used in the government-wide and proprietary fund statements.
| Account | Debit | Credit | Note |
|---|---|---|---|
| Lessee: Intangible right-to-use lease asset | PV of payments + prepayments + initial direct costs | At commencement | |
| Lessee: Lease liability | PV of payments | Cash is credited for amounts paid at commencement | |
| Lessee: Lease liability and Interest expense | Principal and interest portions | Cash | Each payment |
| Lessee: Amortization expense | Asset ÷ shorter of lease term or useful life | Accumulated amortization | Each period |
| Lessor: Lease receivable | PV of payments | Deferred inflow of resources | Underlying asset stays on the books |
| Lessor: Cash | Payment received | Lease receivable and Interest revenue | Each receipt |
| Lessor: Deferred inflow of resources | Systematic portion | Lease revenue | Usually straight-line over the term |
Governmental funds use the current financial resources basis, so the lessee entries differ. At commencement, the fund records a capital outlay expenditure and an other financing source for the lease liability, and later payments are debt service expenditures for principal and interest. The Colorado Department of Education warns districts to budget for that commencement expenditure so they do not overspend the appropriation (Colorado Department of Education, January 2019). The New York State Office of the State Comptroller shows lessors in governmental funds recording a lease receivable and a deferred inflow (NYS OSC, December 2022).
How to identify a lease
GASB defines a lease as “a contract that conveys control of the right to use another entity’s nonfinancial asset” for a period of time in an exchange or exchange-like transaction. Land, buildings, vehicles and equipment are the examples GASB gives (Ohio Auditor of State). A nominal arrangement such as $1 a month in rent is not an exchange transaction and falls outside the definition (Colorado Department of Education). GASB also excludes supply contracts and leases of inventory, and other standards cover subscription-based IT arrangements (Statement 96) and certain public-private and public-public partnerships (Statement 94), which amended GASB 87’s scope paragraph (Ohio Auditor of State).
Leases often hide in contracts signed by individual schools, campus departments and public works crews. A useful control is a lease questionnaire attached to every purchase requisition. The University of Georgia asks departments that lease an asset to attach its lessee questionnaire to the related purchase requisition (University of Georgia, March 17, 2026). Our guide to government contract management software covers tools that can flag these contracts at intake.
The short-term lease exception
A short-term lease has a maximum possible term of 12 months or less at commencement, “including any options to extend, regardless of their probability of being exercised.” You expense or recognize short-term payments as they fall due under the contract (Ohio Auditor of State). A 12-month copier lease with a one-year renewal option is therefore not short-term, even if you never intend to renew.
Worked example: a school district lease
Illustration only. These figures are constructed to show the mechanics. A school district leases a modular classroom building for five years. It pays $50,000 at the end of each year, has no purchase option and pays $3,000 in delivery and setup costs at commencement. The lessor does not state a rate, so the district uses its estimated incremental borrowing rate of 4%.
- Lease liability. $50,000 × 4.45182 (present value factor for five annual payments at 4%) = $222,591.
- Lease asset. $222,591 + $3,000 initial direct costs = $225,591.
- Year 1 interest. $222,591 × 4% = $8,904, so the principal portion of the first payment is $41,096 and the closing liability is $181,495.
- Year 1 amortization. $225,591 ÷ 5 years = $45,118, assuming the building’s useful life is longer than the lease term.
| Account | Debit | Credit | Note |
|---|---|---|---|
| Right-to-use lease asset, buildings | $225,591 | Government-wide, commencement | |
| Lease liability / Cash | $222,591 / $3,000 | Liability plus setup costs paid | |
| Lease liability / Interest expense | $41,096 / $8,904 | Cash $50,000 | Government-wide, year 1 payment |
| Amortization expense | $45,118 | Accumulated amortization $45,118 | Government-wide, year 1 |
| Expenditures, capital outlay | $225,591 | Other financing source, leases $222,591; Cash $3,000 | General fund, commencement |
| Expenditures, debt service principal / interest | $41,096 / $8,904 | Cash $50,000 | General fund, year 1 payment |
Now assume the same building is owned by a public university and leased to a private operator on identical terms. The university records a $222,591 lease receivable and deferred inflow. At the first receipt it debits cash $50,000, credits the receivable $41,096 and credits interest revenue $8,904. It also moves $44,518 ($222,591 ÷ 5) from the deferred inflow to lease revenue, and it keeps depreciating the building.
The standard behind it
GASB issued Statement No. 87, Leases, in June 2017. Statement 95 postponed it, and it is effective for fiscal years beginning after June 15, 2021. It sits in Codification Section L20, and Statement 99 later added lease provisions, including changes to how the short-term lease test is applied (Ohio Auditor of State). It superseded or amended parts of 15 earlier statements, and Implementation Guide 2019-3 answers application questions (North Carolina Office of the State Controller, revised June 20, 2022).
For the discount rate, you use the interest rate the lessor charges, which may be the implicit rate. If that rate is not readily determinable, you use your estimated incremental borrowing rate. A change in your borrowing rate alone does not trigger remeasurement (NYS OSC). Variable payments tied to an index are included in the liability at the commencement rate, while payments based on future usage are excluded.
Common mistakes
- Using the capital asset threshold for leases. GASB 87 sets no capitalization threshold. NYS OSC advises setting a separate, written lease materiality policy. Washington State, for example, tracks leases with total payments of $500,000 or more (Washington OFM, no date shown).
- Treating renewal options as short-term. The 12-month test counts every option, however unlikely.
- Forgetting the fund-level entry. Districts that record only the government-wide entry understate capital outlay and other financing sources in the general fund.
- Missing lessor leases. Cell tower sites, campus retail space and farmland rentals all create receivables and deferred inflows.
- Applying private-sector terms. GASB 87 has no operating or finance classification. Every lessee lease in scope is a financing.
How to report it: note disclosures
NYS OSC lists the lessee disclosures as a general description of leasing arrangements, lease assets by major class with accumulated amortization shown separately from other capital assets, and variable and other payments not included in the liability. Lessees also disclose principal and interest requirements for each of the next five years and in five-year increments after that, commitments under leases before commencement, and impairment losses. Lessors disclose a description of their arrangements, total lease inflows recognized, variable payments not in the receivable, and specific items for regulated leases, subleases and leaseback transactions (NYS OSC). Build these schedules into your year-end close process.
How ERP and lease accounting software automate it
Oracle Cloud ERP Lease Accounting supports GASB 87 for lessees through configuration. Oracle advises using the IFRS 16 method for accrual reporting and an ASC 842 primary ledger with an IFRS 16 secondary ledger when you need modified accrual. Its November 20, 2024 post does not cover lessor accounting (Oracle, November 20, 2024).
Workday Financial Management documents lease accounting under ASC 842 and IFRS 16 and states that its focus is the lessee. Its course manual does not mention GASB 87 (Workday, July 10, 2026). Washington State agencies kept using DebtBook for leases after their Workday go-live, posting year-end entries from DebtBook reports (Washington OFM).
DebtBook, FinQuery (formerly LeaseQuery), Visual Lease and MRI Software sell dedicated lease tools. Each says on its own site that it produces GASB 87 journal entries and disclosures, and DebtBook says it produces both full and modified accrual entries. None of them publishes pricing (DebtBook, May 28, 2026; FinQuery; Visual Lease; MRI Software). One public cost comparison from the Williamson County Auditor’s office listed $20,000 for DebtBook, $22,200 for Trullion and $25,000 for a BKD option that included per-lease review (Williamson County, no date shown). Ask any vendor whether its entries post directly to your general ledger, a point covered in our guide to accrual accounting automation.
How we researched this
We read guidance on Statement 87 from the Ohio Auditor of State, the North Carolina Office of the State Controller, the New York State Comptroller, the Colorado Department of Education, the University of Georgia and Washington’s Office of Financial Management, and vendor documentation from Oracle, Workday, DebtBook, FinQuery, Visual Lease and MRI. Vendor pages are marketing material from companies that sell these products, and we report their claims as claims. We checked all sources on October 8, 2026. The worked example is our own illustration.
Related guides
- Schedule of Expenditures of Federal Awards (SEFA) Guide
- De Minimis Indirect Cost Rate (15%): Nonprofit Setup Guide
Frequently asked questions
Does GASB 87 apply to school districts?
Yes. GASB standards apply to state and local governments, which include public school districts, public colleges and universities, and special districts. Private schools and private universities follow FASB’s ASC 842 instead.
What is the difference between GASB 87 and ASC 842?
ASC 842 classifies lessee leases as operating or finance leases. GASB 87 uses one model in which every lease in scope is a financing, so the lessee always records interest and amortization. GASB 87 lessors also record a deferred inflow of resources, which has no direct ASC 842 equivalent.
Is there a dollar threshold for recording leases under GASB 87?
No. GASB 87 does not set one. Most governments adopt a written materiality policy, and the New York State Comptroller recommends setting lease thresholds separately from capital asset thresholds.
What discount rate should a government use for GASB 87?
Use the rate the lessor charges, including an implicit rate, if you can determine it. Otherwise use your estimated incremental borrowing rate, which is the rate you would pay to borrow for a similar term.
Are software subscriptions leases under GASB 87?
No. Subscription-based IT arrangements fall under GASB Statement 96, which amended GASB 87’s scope and has its own separate guidance.
How are leases recorded in a governmental fund?
At commencement the fund records a capital outlay expenditure and an other financing source equal to the lease liability. Each later payment is recorded as debt service expenditures for principal and interest.
Sources
- Ohio Auditor of State, Bulletin 2022-009, GASB Statement No. 87, Leases, September 19, 2022. ohioauditor.gov
- North Carolina Office of the State Controller, GASB Statement No. 87 financial reporting update, February 11, 2020, revised June 20, 2022. ncosc.gov
- New York State Office of the State Comptroller, Accounting and Financial Reporting for Leases Required by GASB 87, December 2022. osc.ny.gov
- Colorado Department of Education, GASB 87 Leases, January 2019. cde.state.co.us
- Washington Office of Financial Management, DebtBook transition overview and FAQs, no date shown. ofm.wa.gov
- University of Georgia, GASB 87 Leases, March 17, 2026. busfin.uga.edu
- Oracle, Address GASB 87 for US state and local for leases for lessees, November 20, 2024 (vendor). blogs.oracle.com
- Workday, Lease Accounting course manual, July 10, 2026 (vendor). doc.workday.com
- DebtBook, Best lease accounting software, May 28, 2026 (vendor). debtbook.com
- FinQuery, GASB 87 lease accounting software, last modified September 7, 2026 (vendor). finquery.com
- Visual Lease, GASB 87 lease accounting software, last modified November 24, 2025 (vendor). visuallease.com
- MRI Software, GASB 87 software, last modified September 16, 2026 (vendor). mrisoftware.com
- Williamson County Auditor, Analysis of Lease Software, no date shown. public.destinyhosted.com
Sherman Hsieh
Independent analysis of enterprise software — ERP, CRM and more
