If you’re responsible for lease or subscription accounting in a government or nonprofit organization, you’ve likely come face-to-face with the complexities of GASB 87 and GASB 96.
But understanding the standards is only half the battle. The real challenge lies in getting the journal entries right, not just at implementation, but year after year.
Accurate GASB 87 and 96 journal entries are the foundation of clean audits, reliable financial reports, and confident decision-making.
Errors or inconsistencies can have downstream effects, from misstatements in your Annual Comprehensive Financial Report (ACFR) to issues with compliance and transparency.
GASB 87 vs. GASB 96 Journal Entries: What You Need to Know
GASB 87 and GASB 96 were designed to bring greater consistency and transparency to the way governments and nonprofits account for long-term agreements.
So what exactly qualifies under each?
- GASB 87 applies to leases of tangible capital assets like buildings, vehicles, and equipment.
- GASB 96 covers subscription-based IT arrangements (SBITAs), software you don’t own but pay to use over time.
Once you’ve determined that an agreement qualifies, the next steps under both standards are quite similar:
- Term calculations: Both standards require a careful review of the contract term, including any options to extend or terminate. These must be included if they’re reasonably certain to be exercised.
- Asset and liability recognition: For qualifying agreements, you’ll recognize a right-to-use asset and a corresponding liability (or deferred inflow and lease receivable if you’re on the lessor side for GASB 87).
- Component classification: If an agreement includes multiple elements, say, a software subscription and professional services, those need to be separated and treated accordingly. Only the subscription component is subject to GASB 96.
Despite the overlap, there are some key differences worth noting:
- GASB 96 is subscriber-only: Unlike GASB 87, there’s no “lessor” equivalent side to worry about. Governments are always the subscriber, using a vendor’s IT software.
- Non-subscription costs are treated differently: GASB 96 provides specific guidance on how to account for project costs, breaking them down into different stages (preliminary, implementation, and operational) with distinct accounting treatments.
In the webinar, Lease & Subscription Journal Entries: Best Practices & Ongoing Compliance, we walked through examples that highlighted these similarities and differences in action, helping teams build a stronger, more confident process.
Determining Lease and SBITA Types: What Qualifies and What Doesn’t
Before you can record a lease or SBITA, you have to answer the question: Does this agreement even fall under GASB 87 or GASB 96?
Not every contract qualifies and that’s where the determination process comes in.
Classifying your agreements correctly is the first step toward compliant lease and subscription journal entries, accurate reporting, and avoiding unnecessary rework down the road.
There are generally three categories your agreement might fall into:
- Short-term lease or SBITA: These agreements have a maximum term of 12 months or less, including any extension options, even if those extensions aren’t reasonably certain to be exercised. These are not recorded as assets or liabilities under the standards.
- Standard lease or SBITA: If the term is greater than 12 months and it meets the other criteria outlined in GASB 87 or 96, you’ll need to recognize a right-to-use asset and corresponding liability.
- Non-GASB lease or SBITA: Some agreements may look like leases or subscriptions on the surface but don’t meet the necessary definitions when you dig into the details. These are outside the scope of the standards and won’t require GASB-specific treatment.
To make the right call, you'll need to answer a few key determination questions:
- Does the agreement convey control of the right to use a specific asset or software?
- Is the asset or software explicitly identified in the contract?
- Can either party cancel or not renew the agreement without cause?
- Does the renewal require mutual agreement or happen automatically?
Journal Entries for Lessees: Getting it Right Under GASB 87 & GASB 96
Once you've identified a lease or SBITA and determined it falls under GASB 87 or 96, the next step is translating that into the proper journal entries.
Whether you’re working in a full accrual or modified accrual environment, each stage of the agreement has specific accounting requirements and getting these entries right is key to maintaining compliance and audit readiness.
Full Accrual Journal Entries
Under full accrual accounting (typically used for government-wide statements or proprietary funds), journal entries follow the lifecycle of the agreement:
- Initial Recognition
At the start of the agreement, you'll recognize both a right-to-use asset and a lease or subscription liability, measured at the present value of future payments. - Ongoing Payments
As payments are made, you’ll reduce the liability and recognize an interest expense. You'll also amortize the asset over the term of the agreement (the straight-line method is the most common way to recognize amortization). - Year-End Adjustments
Accrual entries may be needed to reflect any unpaid expenses or to account for timing differences in payment schedules. - De-recognition
When the lease or SBITA ends you’ll remove the asset and accumulated amortization balances. If the agreement is terminated early, you’ll remove the associated liability, amortization, and asset balances as well as recording any gain or loss if applicable.
Modified Accrual Journal Entries
For governmental funds using modified accrual accounting, the approach shifts slightly to align with the fund-level focus on current financial resources:
- Recognition
Upon commencement, an expenditure and other financing source is recognized at the fund level. No asset or liability is recorded at the outset like in full accrual, but is instead recognized in your year-end reconciliation entries. - Reconciliation Entries
Adjustments are made at year-end to ensure the fund statements tie back to the government-wide full accrual statements. This includes adjustments to the liability and asset themselves, as well as recognizing accrued interest. - Timing Considerations
It’s essential to track timing closely, especially for cross-year agreements, so you don’t miss required entries or misstate your financial position.
Key takeaway: The journal entries themselves may differ based on your accounting basis, but consistency, documentation, and timing are everything.
Journal Entries for Lessors: What Changes Under GASB 87
While most of the GASB 87 spotlight falls on lessees, it’s important not to overlook the other side of the equation: lessors.
If your organization leases out tangible assets, like facilities or equipment, you’ll need to apply GASB 87 from the lessor perspective.
Full Accrual for Lessors
Under full accrual accounting, lessors recognize two key pieces at the start of the lease:
- Initial Recognition
You’ll record a lease receivable, representing the present value of expected future payments, and a deferred inflow of resources. The underlying asset is no longer depreciated (since it’s effectively transferred for the duration of the lease). - Ongoing Payments
As payments come in, you’ll reduce the lease receivable and recognize revenue tied to the deferred inflow on a straight-line basis (unless another method is more appropriate). - Year-End Adjustments
You may need accrual entries to account for any outstanding payments or timing differences at fiscal year-end.
Key Differences from Lessee Accounting
While the structure of the entries is similar, the big distinction is in what you’re recognizing:
- Lessees recognize a right-to-use asset and liability.
- Lessors recognize a lease receivable and deferred inflow of resources.
And unlike GASB 96, which only applies to lessees, GASB 87 requires that both parties to a lease record their side of the transaction. That’s why clarity on roles and terms in your agreements is so critical.
Change Management & Journal Entry Adjustments: Staying Flexible and Accurate
Even after a lease or SBITA is set up and journal entries are in motion, things can change. Agreements may be terminated early, amended mid-term, or transferred across departments and each of these changes comes with accounting consequences.
1. Termination of Agreements Mid-Term
What happens if your organization terminates a lease or subscription four years into a ten-year agreement? You can’t just stop recording entries. You’ll need to:
- Assess the remaining balances on the books (asset, liability, and accumulated amortization)
- Recognize any gain or loss on termination
- Make sure the journal entries reflect the true financial impact on the termination date
2. Department or Fund Allocation Changes
Sometimes, an asset that was originally assigned to one department or fund gets transferred to another. Maybe IT takes over a subscription initially managed by finance. This can get complicated especially if:
- Multiple funds are involved
- You’re working with both modified and full accrual accounting environments
In these cases, you’ll need to:
- Remove the allocated balances from the original fund
- Add those balances to the new one
- Ensure timing and documentation are clear to support the journal entries
3. Remeasurements Due to Lease Amendments
Mid-term amendments can also trigger remeasurements. For example:
- An agreement is extended beyond its original term
- Future payments increase or decrease
- New components are added to the agreement
When this happens, you’ll need to:
- Remeasure the lease or SBITA by calculating the new present value of the future payments/receipts, using the newly updated information for this calculation.
- Record journal entries to adjust the asset and liability balances accordingly (adjusting from the existing balances as of the modification date to the new balances based on the present value of the future payments/receipts).
- Ensure the modification is reflected clearly in your records and disclosures
How DebtBook Simplifies GASB 87 & 96 Journal Entries
Ready to make GASB compliance less complicated?
Explore DebtBook’s journal entry export feature in our quick, 2-minute Feature Flash video. Whether you're managing leases under GASB 87 or subscriptions under GASB 96, DebtBook helps streamline the process with speed and accuracy.
With just a few clicks, you can:
- Generate detailed journal entry exports tailored to your organization’s general ledger structure
- Track payments and supporting data in one centralized, always up-to-date location
- Customize your export by fiscal year, payment frequency, start and end dates, and more
No more guesswork. No more manual calculations.
Watch the video below to see how DebtBook makes journal entry creation effortless—and audit-ready.
Related Lease & Subscription Management Reading
- Challenges in ASC 842 Compliance & How Technology Can Help
- Understanding ASC 842 Compliance for Nonprofits, Higher Education & Healthcare
- Automated Lease & Subscription Accounting Journal Entries: Audit-Ready in Clicks
Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk.
