GASB 87 Lease Accounting Explained for Municipalities: A Plain-English Guide

If your agency leases vehicles, equipment, office space, or land, GASB 87 changed how those arrangements show up in your financial statements. Here's what it means in practice — without the jargon.

What Is GASB 87?

GASB Statement No. 87 establishes a single model for lease accounting based on the principle that leases are financings of the right to use an underlying asset. In short: most leases that used to be treated as simple operating expenses now appear on your balance sheet as both an asset and a liability.

What Counts as a Lease?

Under GASB 87, a lease is a contract that conveys control of the right to use another entity's nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction. The key word is control — your agency must have both the right to use the asset and the right to determine how it is used.

How to Record a Lease

As the lessee, you recognize a lease liability and an intangible right-to-use asset at the start of the lease term. The liability is measured at the present value of payments expected over the lease term, and the asset is generally the liability plus any payments made at or before commencement. Over time, you reduce the liability as payments are made and amortize the asset.

Staying Audit-Ready

The biggest risk with GASB 87 isn't the math — it's missing leases entirely. Build a complete inventory of every contract that might qualify, document your judgment on lease terms and discount rates, and keep that documentation current. When the audit arrives, you want a clean trail rather than a scramble.

Need help applying GASB 87 to your agency's leases? That's exactly the kind of work we do every day. Book a free diagnostic and we'll review where you stand.