Where are Leases Reported in the Financial Statements Under GASB 87?

What Lessees Must Report

Government entities acting as lessees are now required to:

• Recognize a lease liability: The present value of future lease payments.
• Recognize a lease asset: Initially equal to the lease liability, with adjustments for prepayments or incentives.

This means that lease agreements previously disclosed only in the footnotes now directly impact the financial statements.

What Lessors Must Report

For lessors, GASB 87 requires:

• Recognition of a lease receivable: The present value of expected lease payments.
• Recognition of a deferred inflow of resources: Equal to the lease receivable plus any payments received before commencement.

Lessors also continue to report the underlying asset in their own statements.

Scope of Lease Reporting

GASB 87 applies to leases with terms longer than 12 months (including options that are likely to be exercised). This includes leases for buildings, equipment, land, and other tangible assets. Short-term leases and certain exceptions (like mineral rights or donated use) are excluded.

What's important here?

Under GASB 87, most leases are now reported on the face of the financial statements, no longer buried in footnotes. Lessees must report a lease asset and liability; lessors must report a lease receivable and deferred inflow. This shift increases transparency and gives stakeholders a clearer picture of an organization’s long-term obligations and resources. Accurate lease reporting is critical for compliance and financial clarity.