The allowance for credit losses may be determined using various methods. For example, an entity may use discounted cash flow methods, loss-rate methods, roll-rate methods, probability-of-default methods, or methods that utilize an aging schedule. An entity is not required to utilize a discounted cash flow method to estimate expected credit losses. Similarly, an entity is not required to reconcile the estimation technique it uses with a discounted cash flow method.
As an accounting policy election for each class of financing receivable or major security type, an entity may adjust the effective interest rate used to discount expected cash flows to consider the timing (and changes in timing) of expected cash flows resulting from expected prepayments.
(P) December 16, 2026; (N) December 16, 2026
105-10-65-10As an accounting policy election for each class of financing receivable or major security type, an entity may adjust the effective interest rate used to discount expected cash flows to consider the timing (and changes in timing) of expected cash flows resulting from expected prepayments. When developing an estimate of expected credit losses on financial asset(s), an entity shall consider available information relevant to assessing the collectibility of cash flows. This information may include internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. An entity shall consider relevant qualitative and quantitative factors that relate to the environment in which the entity operates and are specific to the borrower(s). When financial assets are evaluated on a collective or individual basis, an entity is not required to search all possible information that is not reasonably available without undue cost and effort. Furthermore, an entity is not required to develop a hypothetical pool of financial assets. An entity may find that using its internal information is sufficient in determining collectibility.
Historical credit loss experience of financial assets with similar risk characteristics generally provides a basis for an entity's assessment of expected credit losses. Historical loss information can be internal or external historical loss information (or a combination of both). An entity shall consider adjustments to historical loss information for differences in current asset specific risk characteristics, such as differences in underwriting standards, portfolio mix, or asset term within a pool at the reporting date or when an entity's historical loss information is not reflective of the contractual term of the financial asset or group of financial assets.
(P) December 16, 2025; (N) December 16, 2025
326-10-65-6An entity may elect the practical expedient described in paragraphs and an entity other than a public business entity may elect the accounting policy described in paragraphs when developing an estimate of expected credit losses on current accounts receivable and current contract asset balances arising from transactions accounted for under Topic 606 on revenue from contracts with customers. This includes those asset balances acquired in a transaction accounted for under Topic 805 on business combinations or recognized through the consolidation of a variable interest entity that is not a business as described in paragraph 810-10-30-3 that arose from transactions that the acquiree or variable interest entity accounted for under Topic 606. (P) December 16, 2025; (N) December 16, 2025
326-10-65-6When elected, the practical expedient and accounting policy election shall be applied consistently to all current accounts receivable and current contract assets described in paragraph 326-20-30-10A. When determining whether an accounts receivable or contract asset balance is a current asset, an entity should use a one-year period unless an entity’s operating cycle exceeds 12 months, in which case the longer period shall be used (see paragraph 210-10-45-3).(P) December 16, 2025; (N) December 16, 2025
326-10-65-6For assets described in paragraph 326-20-30-10A, an entity may elect a practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset.(P) December 16, 2025; (N) December 16, 2025
326-10-65-6When developing an estimate of expected credit losses for assets to which the practical expedient is applied, an entity shall continue to adjust historical loss information to reflect current conditions to the extent that historical loss information does not reflect current conditions. For example, an entity that has identified an individual customer that is experiencing financial distress would consider that information in its estimate of expected credit losses for that customer even if that information has not yet affected its historical loss experience (that is, even if the customer has not defaulted as of the balance sheet date). Similarly, an entity that has expanded its credit policies before the balance sheet date to offer credit to lower-credit-quality customers would consider that information in its estimate of expected credit losses even if that change has not yet affected its historical loss experience (that is, even if the new, lower-credit-quality customers have not defaulted as of the balance sheet date). As another example, if an entity determined that economic conditions as of the balance sheet date were different from the conditions that existed over the period during which historical data were collected because of the onset of a severe economic recession before the balance sheet date, the entity should consider whether an adjustment to historical loss information is necessary. See paragraph 326-20-50-12A for related disclosure requirements and paragraphs for an illustrative Example.(P) December 16, 2025; (N) December 16, 2025
326-10-65-6An entity other than a public business entity that elects the practical expedient in paragraphs may also elect an accounting policy when estimating expected credit losses to consider collection activity after the balance sheet date but before the entity’s financial statements are available to be issued (or before any alternative date selected by the entity that is after the balance sheet date but before the financial statements are available to be issued). For example, under this accounting policy election, the allowance for credit losses related to those asset balances described in paragraph 326-20-30-10A that are collected before an entity’s financial statements are available to be issued (or before the alternative date selected by the entity) would be zero. See paragraphs for specific disclosure requirements applicable to this accounting policy election.(P) December 16, 2025; (N) December 16, 2025
326-10-65-6An entity other than a public business entity that applies the practical expedient and the accounting policy election shall estimate its expected credit losses on current accounts receivable and current contract asset balances in the following sequence: - a
The entity shall first consider subsequent collections of those asset balances described in paragraph 326-20-30-10A that were outstanding as of the balance sheet date. No credit loss allowance shall be recorded for asset balances that have been collected before the financial statements are available to be issued (or before the alternative date selected by the entity). - b
The entity shall then evaluate any remaining uncollected amounts as of the date that the financial statements are available to be issued (or as of the alternative date selected by the entity) using the practical expedient in paragraphs . That evaluation shall be based on the delinquency status of those uncollected balances as of the date that the financial statements are available to be issued (or the alternative date selected by the entity). See paragraphs for an illustrative Example.
(P) December 16, 2025; (N) December 16, 2025
326-10-65-6For entities estimating expected credit losses using an aging schedule (as illustrated in paragraphs ), an entity other than a public business entity that elects to consider subsequent collection activity is permitted, but not required, to update historical loss rates for collection activity after the balance sheet date when determining the allowance for credit losses for amounts outstanding as of the balance sheet date that remain uncollected as of the date that the financial statements are available to be issued (or the alternative date selected by the entity).(P) December 16, 2025; (N) December 16, 2025
326-10-65-6A change in the date through which an entity considers subsequent collection activity when applying the accounting policy election is not a change in an accounting principle in accordance with Topic 250 on accounting changes and error corrections.An entity shall record the allowance for credit losses for purchased financial assets with credit deterioration in accordance with paragraphs , 326-20-30-12, and 326-20-30-13A. An entity shall add the allowance for credit losses at the date of acquisition to the purchase price to determine the initial amortized cost basis for purchased financial assets with credit deterioration. Any noncredit discount or premium resulting from acquiring a pool of purchased financial assets with credit deterioration shall be allocated to each individual asset. At the acquisition date, the initial allowance for credit losses determined on a collective basis shall be allocated to individual assets to appropriately allocate any noncredit discount or premium. (P) December 16, 2026; (N) December 16, 2026
326-10-65-7 | Editor's Note: The content of paragraph 326-20-30-13 will change upon transition, together with a change in the heading noted below. |
| > Purchased Financial Assets with Credit Deterioration and Purchased Seasoned Loans |
An entity shall record the allowance for credit losses for purchased financial assets with credit deteriorationand purchased seasoned loansin accordance with paragraphs , 326-20-30-12, and 326-20-30-14. Additionally, expected recoveries of amounts previously written off and expected to be written off shall be included in determining the allowance for credit losses in accordance with paragraph 326-20-30-1 for purchased seasoned loans and paragraph 326-20-30-13A for purchased financial assets with credit deterioration. An entity shall add the allowance for credit losses at the date of acquisition to the purchase price to determine the initial amortized cost basis for purchased financial assets with credit deterioration and purchased seasoned loans. Any noncredit discount or premium resulting from acquiring a pool of purchased financial assets with credit deterioration or purchased seasoned loans shall be allocated to each individual asset. At the acquisition date, the initial allowance for credit losses determined on a collective basis shall be allocated to individual assets to appropriately allocate any noncredit discount or premium.If an entity estimates expected credit losses using a discounted cash flow method, the entity shall discount expected credit losses at the rate that equates the present value of the purchaser's estimate of the asset's future cash flows with the purchase price of the asset. If an entity estimates expected credit losses using a method other than a discounted cash flow method, the entity shall estimate expected credit losses on the basis of the unpaid principal balance (face value) of the financial asset(s). See paragraphs for implementation guidance and examples. (P) December 16, 2026; (N) December 16, 2026
326-10-65-7If an entity estimates expected credit losses using a discounted cash flow method for purchased financial assets with credit deterioration and purchased seasoned loans, the entity shall discount expected credit losses at the rate that equates the present value of the purchaser's estimate of the asset's future cash flows with the purchase price of the asset. If an entity estimates expected credit losses using a method other than a discounted cash flow method, the entity shall estimate expected credit losses on the basis of the unpaid principal balance (face value) of the financial asset(s), unless the entity elects the accounting policy election in paragraph 326-20-35-1A for purchased seasoned loans. See paragraphs for implementation guidance and examples.An entity shall account for purchased financial assets that do not have a more-than-insignificant deterioration in credit quality since origination in a manner consistent with originated financial assets in accordance with paragraphs and 326-20-30-12. An entity shall not apply the guidance in paragraphs for purchased financial assets that do not have a more-than-insignificant deterioration in credit quality since origination. (P) December 16, 2026; (N) December 16, 2026
326-10-65-7An entity shall account for purchased financial assets that do not have a more-than-insignificant deterioration in credit quality since origination or are not purchased seasoned loans in a manner consistent with originated financial assets in accordance with paragraphs and 326-20-30-12.(P) December 16, 2026; (N) December 16, 2026
326-10-65-7A purchased seasoned loan is a loan that meets either of the following criteria and is not a purchased financial asset with credit deterioration or a financial asset listed in paragraph 326-20-30-19: - a
The loan is obtained through a business combination accounted for using the acquisition method in accordance with Subtopic 805-20. - b
The loan is (i) obtained through a transfer that is not a business combination accounted for using the acquisition method in accordance with Subtopic 805-20 or (ii) initially recognized through the consolidation of a variable interest entity in accordance with paragraph 810-10-30-3. In addition, the loan must meet both of the following criteria: - 1
The loan is obtained more than 90 days after its origination date.
- 2
The transferee was not involved with the origination of the loan. See paragraph 326-20-30-17 for guidance on how to assess whether the transferee was involved with the origination of the loan.
(P) December 16, 2026; (N) December 16, 2026
326-10-65-7The transferee is more likely to be involved with the origination of a loan when the transfer of that loan is effected through the terms of an existing contractual relationship, financing arrangement, purchase commitment, or other agreement with the entity that originated and transferred the loan. The transferee is involved with the origination of a loan when either of the following occurs: - a
Within 90 days after the loan origination date, the transferee has direct or indirect exposure to the economic risks and rewards of ownership.
- b
The transferee has substantive influence on the offering, arranging, underwriting, or other nonadministrative lending activity performed by the originator (the transferor) related to the initial extension of credit to a debtor.
(P) December 16, 2026; (N) December 16, 2026
326-10-65-7When the transferee acquires a group of loans under paragraph 326-20-30-16(b), it shall evaluate the guidance in paragraph 326-20-30-17 on an individual loan basis.(P) December 16, 2026; (N) December 16, 2026
326-10-65-7Purchased seasoned loans do not include the following: - a
Credit cards
- b
- c
Trade receivables arising from transactions accounted for under Topic 606 on revenue from contracts with customers.