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While the decision to lease or purchase an asset is not new, the accounting and financial reporting implications of the decision are changing. The Governmental Accounting Standards Board (GASB) issued Statement No. 87, Leases, which outlines new requirements for governmental entities when it comes to lease accounting. GASB 87 is effective for fiscal years beginning after June 15, 2021.
GASB 87 replaces operating and capital lease categories with a single model for lease accounting based on the concept that leases are a means to finance the right to use an asset. Under the new rules, a lessee recognizes a lease liability and an intangible asset while the lessor recognizes a lease receivable and a deferred inflow of resources. However, in order to properly implement this standard, there are some key definitions and concepts to understand first.