NetLease - GASB 87 Lessor Leases
What is GASB 87?
GASB 87 is the lease accounting standard used by state and local governments. On the lessor side, its purpose is to clearly show two things: what the government is entitled to receive for leasing out an asset, and when that revenue is actually earned.
Instead of treating lease payments like traditional rent, GASB 87 treats a lease as a long-term arrangement that creates a right to receive payments over time. Revenue is recognized gradually as the lessee uses the asset, not all at once when the lease begins or when cash is received.
How GASB 87 Differs from ASC 842 for Lessors
ASC 842 is the lease standard used by GAAP compliant companies. While it shares some concepts with GASB 87, the lessor accounting under ASC 842 is more complex.
Under ASC 842, lessors must classify leases, and that classification determines whether revenue is recognized evenly over time or partly upfront. Some leases are treated like rentals, while others are treated more like sales or financing arrangements.
GASB 87 removes this complexity. Governments do not classify leases and do not recognize upfront profit. Every long-term lease follows the same model: record what is owed, earn interest over time, and recognize lease revenue gradually.
How a Lease Is Recorded
At lease commencement, the government records two equal amounts.
The lease receivable represents the value of lease payments the government expects to receive over the lease term, adjusted to today’s dollars. In simple terms, this is the government’s IOU from the lessee.
The deferred inflow of resources represents lease revenue that has not yet been earned. Even though the government has a legal right to the payments, it earns the revenue only as time passes and access to the asset is provided.
The journal entry will look similar to the below at commencement:
DR Lease Receivable
CR Deferred Inflow of Resources
What Happens to the Asset and Over Time
The leased asset stays on the government’s balance sheet at its historical cost, net of any depreciation recorded before the lease began. During the lease term, the government does not record additional depreciation because the asset’s service capacity is being used by the lessee.
As the lease progresses, three things happen repeatedly:
1. Interest is earned on the unpaid lease receivable
DR Lease Receivable
CR Interest Revenue
2. Cash is collected, reducing what the lessee owes
DR Cash or Payable/Receivable Clearing (in NetLease)
CR Lease Receivable
3. Lease revenue is recognized by reducing the deferred inflow
DR Deferred Inflow of Resources
CR Lease Revenue
These are the three pieces that will be shown in each amortization journal entry.
Creating a GASB 87 Lessor Lease
Because GASB 87 lessor accounting differs significantly from ASC 842, GASB lessor leases should be created in NetLease, not NetLessor. NetLease’s accounting structure more closely aligns with GASB 87 requirements, with the entries effectively mirroring lessee accounting in reverse.
Follow instructions below for proper setup.
1. Confirm that GASB accounting is enabled at the system level.
Navigate to:
NetLease > NetLease Setup > System Setup
Set Accounting Standard to All or GASB 87.
2. Ensure the GASB lessor schedule is visible on the lease record.
Navigate to:
Customization > Lists, Records, & Fields > Record Types
Edit the NetLease Lease preferred form. On the Sublists tab, enable GASB Sublease / Lessor Schedule.
3. A GASB-specific lease type is required to ensure balances and journal entries post to the correct accounts.
When creating the new lease type:
Set Entity Type to Lessor
Set Classification to Lessor / Sublease
After saving, the account mapping labels will update to reflect GASB 87 lessor accounts. This makes it easier to identify how each balance should be mapped. Map the required accounts as you normally would for other lease types.
4. Once system setup and lease types are complete, you can create the lease.
Create a new NetLease lease record and select the lease type that you just created and the Lessor / Sublease classification. After saving the initial lease record, you will be able to select a Customer on the lease instead of a Vendor as in normal NetLease setup.
5. NetLease is then used as normal to generate the depreciation schedule, create journals, and run invoicing.