GASB 87 Journal Entries: A Lessee Example

Under GASB 87, a government lessee makes one initial entry and then two recurring entries per period. At commencement it records a lease liability at the present value of the payments and an intangible right-to-use lease asset. Each period after that it recognizes interest expense on the liability, amortization expense on the asset, and reduces the liability as payments are made. There is no operating-versus-finance split, so every lease longer than short-term follows this same pattern.

Last updated July 2026. This is a plain-English walkthrough for context, not accounting advice; confirm entries with your auditors.

GASB Statement No. 87 has been effective for fiscal years beginning after June 15, 2021, so state and local governments have been living with these entries for several reporting cycles. The mechanics are not complicated once the lease is abstracted into the three inputs that drive everything: the lease term, the payments, and the discount rate. This shows the entries with a simple worked example.

What are the initial GASB 87 journal entries for a lessee?

At the commencement of the lease term, the government records a lease liability equal to the present value of the payments expected over the term, and an intangible right-to-use lease asset equal to that liability plus any payments made at or before commencement and initial direct costs, less any lease incentives. In the simplest case where those adjustments are zero, the asset and the liability start at the same amount.

A worked GASB 87 example

Take a county that leases office space for 5 years with fixed annual payments of $100,000 paid at the end of each year, and no options it is reasonably certain to exercise. The incremental borrowing rate is 4%, because the lease does not state a rate the county can readily determine. The present value of five annual payments of $100,000 at 4% is approximately $445,182.

At commencement, the county records the asset and the liability at that present value:

What are the recurring GASB 87 entries each year?

Each period the county recognizes interest on the outstanding liability, reduces the liability by the principal portion of the payment, and amortizes the asset on a straight-line basis over the shorter of the lease term or the asset's useful life. In year one, interest is 4% of $445,182, or about $17,807. The $100,000 payment covers that interest and reduces the liability by the remaining $82,193. Straight-line amortization of the asset over 5 years is $89,036 per year.

The interest portion falls every year as the liability shrinks, so more of each fixed payment goes to principal over time, exactly like a mortgage amortization schedule. The amortization of the asset stays flat because it is straight-line. By the end of year five the liability is zero and the asset is fully amortized.

How is the GASB 87 lessee entry different from ASC 842?

The GASB 87 pattern above looks like an ASC 842 finance lease, and that is the key difference. ASC 842 keeps an operating-versus-finance classification for private companies, and an operating lease there produces a single straight-line expense rather than separate interest and amortization. GASB 87 has no such split: every lessee lease longer than short-term gets the interest-plus-amortization treatment shown here. So a government reporting under GASB 87 never books a straight-line operating-lease expense line the way a private company might. The full comparison is in GASB 87 vs ASC 842.

What about short-term leases?

Short-term leases skip all of this. A lease whose maximum possible term is 12 months or less at commencement, including every option to extend regardless of probability, is not recognized on the balance sheet. The government simply recognizes the payments as expense over the term. That makes the short-term test the first thing to settle for each lease, because it decides whether you make the entries above at all. The trap is the "maximum possible term" language: a 9-month lease with a 6-month renewal option has a 15-month maximum term and is not short-term.

What drives the numbers in these entries?

Three inputs, all of which come out of the lease itself: the lease term including options reasonably certain of exercise, the payment schedule, and the discount rate. Get any of those wrong and every entry above is wrong for the life of the lease. The discount rate is the rate the lessor charges when readily determinable, otherwise the government's incremental borrowing rate. Because the liability is a present value, a wrong rate misstates both the liability and the interest that runs off it. This is why abstraction quality matters before you ever open the accounting engine: the entries are mechanical, but only once the term, payments, and rate are pulled from the lease accurately and tied back to their source. The mechanics of getting those fields ready are covered on GASB 87 lease accounting software.

Where does the audit look?

Auditors trace the recognized liability back to the lease terms and the rate, and they test whether the government identified its whole lease population, including embedded and easy-to-miss arrangements. A defensible file ties each field in the calculation to the page and clause it came from, and keeping that evidence organized alongside the government's other reporting obligations is its own compliance discipline. The single most common finding is not a math error in the entries; it is a lease that was never abstracted, so it never got an entry at all.

Get the fields right first

The GASB 87 journal entries are the easy part. The work is abstracting every government lease into the term, payments, and discount rate the entries run on, and doing it accurately enough to survive an audit. Upload a lease to see those fields extracted with a source citation on each, then export them into whatever engine books the entries. Start on GASB 87 lease accounting software or with the commercial lease abstract template.