GASB 87
Issued by the Governmental Accounting Standards Board (GASB), Statement No. 87 specifically addresses lease accounting for state and local governments.
GASB 87 requires recognition of almost all leases as assets and liabilities on the balance sheet, with lease payments accounted for as repayments of lease liabilities and related interest.
Key aspects of GASB 87
- Applies specifically to governmental entities.
- Eliminates the operating lease classification; all leases are recorded similarly to finance leases.
- Lease liability and right-of-use asset recognition on the balance sheet.
ASC 842 87
Issued by the Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) 842 sets lease accounting rules for private companies, nonprofit organizations, and publicly traded entities.
ASC 842 classifies leases into two categories: finance leases (similar to capital leases) and operating leases, with specific rules for recognizing lease liabilities and right-of-use assets.
Key aspects of ASC 842
- Applicable to private companies, nonprofits, and publicly traded entities.
- Maintains distinction between finance and operating leases.
- Both lease types are recognized on balance sheets, but expense recognition differs.
Why the Distinction Matters
Correctly identifying and applying GASB 87 or ASC 842 is essential for compliance, accuracy in financial statements, and effective financial management. Misapplication of these standards can lead to significant financial and regulatory implications.
What’s important here?
GASB 87 applies exclusively to governmental entities and treats nearly all leases similarly to finance leases. ASC 842 applies to private, nonprofit, and publicly traded entities, maintaining a distinction between finance and operating leases. Proper application of these standards is vital for financial accuracy and regulatory compliance in public finance.
