# ASC 326-20-55: Financial Instruments—Credit Losses — Measured at Amortized Cost — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/326/20/#55-implementation-guidance-and-illustrations) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:89d4883999115c264a8c3bdb31125e2548b973083dad3a1845bad179df269494 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 326-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/326/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [326-20-55-1](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:b82f418b6931db2dc0c8f9c0a1f10569a7089292743c48435543bb4c4745369d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section provides implementation guidance for management's estimate of expected credit losses on [financial asset(s)](https://asc.understandingaccounting.org/glossary/f/#financial-asset "Cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following: Receive cash or another financial instrument from a second entity Exchange other financial instruments on potentially favorable terms with the second entity."). This Section is organized as follows: 1. a Information considered when estimating expected credit losses 2. b Developing an estimate of expected credit losses 3. c Net investment in leases 4. d Effect of a fair value hedge on the discount rate when using a discounted cash flow model. ##### [326-20-55-2](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:f2d6c94caedec57a050532decffd202a3392620f9db5c5558eddb67ecb484cda Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In determining its estimate of expected credit losses, an entity should evaluate information related to the borrower's creditworthiness, changes in its lending strategies and underwriting practices, and the current and forecasted direction of the economic and business environment. This Subtopic does not specify a particular methodology to be applied by an entity for determining historical credit loss experience. That methodology may vary depending on the size of the entity, the range of the entity's activities, the nature of the entity's [financial assets](https://asc.understandingaccounting.org/glossary/f/#financial-asset "Cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following: Receive cash or another financial instrument from a second entity Exchange other financial instruments on potentially favorable terms with the second entity."), and other factors. ##### [326-20-55-3](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:4b478cec33ae11da49cf68fe3b56ee1055fe08e380ad3305d2e83e236c3a28b4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Historical loss information generally provides a basis for an entity's assessment of expected credit losses. An entity may use historical periods that represent management's expectations for future credit losses. An entity also may elect to use other historical loss periods, adjusted for current conditions, and other reasonable and supportable forecasts. When determining historical loss information in estimating expected credit losses, the information about historical credit loss data, after adjustments for current conditions and reasonable and supportable forecasts, should be applied to pools that are defined in a manner that is consistent with the pools for which the historical credit loss experience was observed. ##### [326-20-55-4](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:ece9da37c502708b65836180a451a5c542c32fd8d93a11018ed8675f746ea1e5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because historical experience may not fully reflect an entity's expectations about the future, management should adjust historical loss information, as necessary, to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information. In making this determination, management should consider characteristics of the financial assets that are relevant in the circumstances. To adjust historical credit loss information for current conditions and reasonable and supportable forecasts, an entity should consider significant factors that are relevant to determining the expected collectibility. Examples of factors an entity may consider include any of the following, depending on the nature of the asset (not all of these may be relevant to every situation, and other factors not on the list may be relevant): 1. a The borrower's financial condition, credit rating, credit score, asset quality, or business prospects 2. b The borrower's ability to make scheduled interest or principal payments 3. c The remaining payment terms of the financial asset(s) 4. d The remaining time to maturity and the timing and extent of prepayments on the financial asset(s) 5. e The nature and volume of the entity's financial asset(s) 6. f The volume and severity of past due financial asset(s) and the volume and severity of adversely classified or rated financial asset(s) 7. g The value of underlying collateral on financial assets in which the collateral-dependent practical expedient has not been utilized 8. h The entity's lending policies and procedures, including changes in lending strategies, underwriting standards, collection, writeoff, and recovery practices, as well as knowledge of the borrower's operations or the borrower's standing in the community 9. i The quality of the entity's credit review system 10. j The experience, ability, and depth of the entity's management, lending staff, and other relevant staff 11. k The environmental factors of a borrower and the areas in which the entity's credit is concentrated, such as: 1. 1 Regulatory, legal, or technological environment to which the entity has exposure 2. 2 Changes and expected changes in the general market condition of either the geographical area or the industry to which the entity has exposure 3. 3 Changes and expected changes in international, national, regional, and local economic and business conditions and developments in which the entity operates, including the condition and expected condition of various market segments. ##### [326-20-55-5](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:ff5e494273d2f762a3437815ee11ba047bbc289c181891a67728eed74fea5555 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In evaluating [financial assets](https://asc.understandingaccounting.org/glossary/f/#financial-asset "Cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following: Receive cash or another financial instrument from a second entity Exchange other financial instruments on potentially favorable terms with the second entity.") on a collective (pool) basis, an entity should aggregate financial assets on the basis of similar risk characteristics, which may include any one or a combination of the following (the following list is not intended to be all inclusive): 1. a Internal or external (third-party) credit score or credit ratings 2. b Risk ratings or classification 3. c Financial asset type 4. d Collateral type 5. e Size 6. f [Effective interest rate](https://asc.understandingaccounting.org/glossary/e/#effective-interest-rate "The rate of return implicit in the financial asset, that is, the contractual interest rate adjusted for any net deferred fees or costs, premium, or discount existing at the origination or acquisition of the financial asset. For purchased financial assets with credit deterioration, however, to decouple interest income from credit loss recognition, the premium or discount at acquisition excludes the discount embedded in the purchase price that is attributable to the acquirer's assessment of credit losses at the date of acquisition.") 7. g Term 8. h Geographical location 9. i Industry of the borrower 10. j Vintage 11. k Historical or expected credit loss patterns 12. l Reasonable and supportable forecast periods. ##### [326-20-55-6](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:93e88832097512c8e0f6ac36e2c57af2bf5c8a25af475932a5b201cc86d0ff48 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Estimating expected credit losses is highly judgmental and generally will require an entity to make specific judgments. Those judgments may include any of the following: 1. a The definition of default for default-based statistics 2. b The approach to measuring the historical loss amount for loss-rate statistics, including whether the amount is simply based on the amortized cost amount written off and whether there should be adjustments to historical credit losses (if any) to reflect the entity's policies for recognizing accrued interest 3. c The approach to determine the appropriate historical period for estimating expected credit loss statistics 4. d The approach to adjusting historical credit loss information to reflect current conditions and reasonable and supportable forecasts that are different from conditions existing in the historical period 5. e The methods of utilizing historical experience 6. f The method of adjusting loss statistics for recoveries 7. g How expected prepayments affect the estimate of expected credit losses 8. h How the entity plans to revert to historical credit loss information for periods beyond which the entity is able to make or obtain reasonable and supportable forecasts of expected credit losses 9. i The assessment of whether a financial asset exhibits risk characteristics similar to other financial assets. ##### [326-20-55-7](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:eedf56a8a5547561e3ac638001d5aa1b7f107bb6d0b169b748c492ca4763b620 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because of the subjective nature of the estimate, this Subtopic does not require specific approaches when developing the estimate of expected credit losses. Rather, an entity should use judgment to develop estimation techniques that are applied consistently over time and should faithfully estimate the collectibility of the financial assets by applying the principles in this Subtopic. An entity should utilize estimation techniques that are practical and relevant to the circumstance. The method(s) used to estimate expected credit losses may vary on the basis of the type of financial asset, the entity's ability to predict the timing of cash flows, and the information available to the entity. ##### [326-20-55-8](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:d853ae8e311be8f53e2fc83ab0176d37bd459ff7a1aa99141ad06874dcefde21 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic requires that an entity recognize an allowance for credit losses on net investment in [leases](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") recognized by a [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") in accordance with Topic 842 on leases. An entity should include the unguaranteed residual asset with the lease receivable, net of any deferred selling profit, if applicable (that is, the net investment in the lease). When measuring expected credit losses on net investment in leases, the [lease term](https://asc.understandingaccounting.org/glossary/l/#lease-term "The noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following: Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor.") should be used as the contractual term. When measuring expected credit losses on net investment in leases using a discounted cash flow method, the discount rate used in measuring the lease receivable under Topic 842 should be used in place of the [effective interest rate](https://asc.understandingaccounting.org/glossary/e/#effective-interest-rate "The rate of return implicit in the financial asset, that is, the contractual interest rate adjusted for any net deferred fees or costs, premium, or discount existing at the origination or acquisition of the financial asset. For purchased financial assets with credit deterioration, however, to decouple interest income from credit loss recognition, the premium or discount at acquisition excludes the discount embedded in the purchase price that is attributable to the acquirer's assessment of credit losses at the date of acquisition."). ##### [326-20-55-9](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:d03ad1c63d33ceb87d655e67760e5b226bfba4f3db8299514bd3e26b9112e906 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Section 815-25-35 implicitly affects the measurement of credit losses under this Topic by requiring the present value of expected future cash flows to be discounted by the new [effective interest rate](https://asc.understandingaccounting.org/glossary/e/#effective-interest-rate "The rate of return implicit in the financial asset, that is, the contractual interest rate adjusted for any net deferred fees or costs, premium, or discount existing at the origination or acquisition of the financial asset. For purchased financial assets with credit deterioration, however, to decouple interest income from credit loss recognition, the premium or discount at acquisition excludes the discount embedded in the purchase price that is attributable to the acquirer's assessment of credit losses at the date of acquisition.") based on the adjusted [amortized cost basis](https://asc.understandingaccounting.org/glossary/a/#amortized-cost-basis "The amortized cost basis is the amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, writeoffs, foreign exchange, and fair value hedge accounting adjustments.") in a hedged [loan](https://asc.understandingaccounting.org/glossary/l/#loan "A contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in the creditor's statement of financial position. Examples include but are not limited to accounts receivable (with terms exceeding one year) and notes receivable."). When the amortized cost basis of a loan has been adjusted under fair value hedge accounting, the effective interest rate is the discount rate that equates the present value of the loan's future cash flows with that adjusted amortized cost basis. The adjustment under fair value hedge accounting of the loan's carrying amount for changes in fair value attributable to the hedged risk under Section 815-25-35 shall be considered to be an adjustment of the loan's amortized cost basis. Paragraph [815-25-35-11](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-11) explains that the loan's original effective interest rate becomes irrelevant once the recorded amount of the loan is adjusted for any changes in its fair value. Paragraph [815-25-35-11](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-11) also explains that an entity should not adjust the amortized cost basis or the discount rate of the individual assets or individual beneficial interest included in the closed portfolio for a basis adjustment that is maintained on the closed portfolio basis in accordance with paragraph [815-25-35-1(c)](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-1). ##### [326-20-55-10](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:edc073b3db8961bbd95f52376affd5bef5291ff1965a8e692a5bf28f4a1d6838 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance addresses the meaning of the term _portfolio segment_. All of the following are examples of portfolio segments: 1. a Type of [financing receivable](https://asc.understandingaccounting.org/glossary/f/#financing-receivable "A financing arrangement that has both of the following characteristics: It represents a contractual right to receive money in either of the following ways: On demand On fixed or determinable dates. It is recognized as an asset in the entity's statement of financial position. See paragraphs 310-10-55-13310-10-55-14310-10-55-15 for more information on the definition of financing receivable, including a list of items that are excluded from the definition (for example, debt securities).") 2. b Industry sector of the borrower 3. c Risk rating. ##### [326-20-55-11](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:614f0e0d6b47043e80f6a1fabcd0b22dedd60749c5abaa337e1c1b8a13a65944 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance addresses application of the term _[class of financing receivable](https://asc.understandingaccounting.org/glossary/c/#class-of-financing-receivable "A group of financing receivables determined on the basis of both of the following:Risk characteristics of the financing receivableAn entity's method for monitoring and assessing credit risk.See paragraphs 326-20-55-11326-20-55-12326-20-55-13326-20-55-14 and 326-20-50-3.")_. An entity should base its principal determination of class of financing receivable by disaggregating to the level that the entity uses when assessing and monitoring the risk and performance of the portfolio for various types of financing receivables. In its assessment, the entity should consider the risk characteristics of the financing receivables. ##### [326-20-55-12](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:cd71023dbdad320f9b929370c752de82047eef613a4a96b3e90eb4e36e1b0189 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In determining the appropriate level of its internal reporting to use as a basis for disclosure, an entity should consider the level of detail needed by a user to understand the risks inherent in the entity's financing receivables. An entity could further disaggregate its financing receivables portfolio by considering numerous factors. Examples of factors that the entity should consider include any of the following: 1. a Categorization of borrowers, such as any of the following: 1. 1 Commercial loan borrowers 2. 2 Consumer loan borrowers 3. 3 [Related party](https://asc.understandingaccounting.org/glossary/r/#related-parties "Related parties include: Affiliates of the entity Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity Trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management Principal owners of the entity and members of their immediate families Management of the entity and members of their immediate families Other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.") borrowers. 2. b Type of financing receivable, such as any of the following: 1. 1 Mortgage loans 2. 2 Credit card loans 3. 3 Interest-only loans 4. 4 Finance leases. 3. c Industry sector, such as either of the following: 1. 1 Real estate 2. 2 Mining. 4. d Type of collateral, such as any of the following: 1. 1 Residential property 2. 2 Commercial property 3. 3 Government-guaranteed collateral 4. 4 Uncollateralized (unsecured) financing receivables. 5. e Geographic distribution, including both of the following: 1. 1 Domestic 2. 2 International. ##### [326-20-55-13](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:01a18cef4c254466b313dc05000775f1e8f95c3406095817821379a1da087ad3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity also may consider factors related to concentrations of credit risk as discussed in Section 825-10-55. ##### [326-20-55-14](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:3d0017ad5079d5cce9b8881837367acb2058874b21889f47f8877bcc49feebb6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Classes of financing receivables generally are a disaggregation of a [portfolio segment](https://asc.understandingaccounting.org/glossary/p/#portfolio-segment "The level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. See paragraphs 326-20-50-3 and 326-20-55-10."). For determining the appropriate classes of financing receivables that are related to a portfolio segment, the portfolio segment is the starting point with further disaggregation in accordance with the guidance in paragraphs [326-20-55-11 through 55-13](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-11) . The determination of class for financing receivables that are not related to a portfolio segment (because there is no associated allowance) also should be based on the guidance in those paragraphs. ##### [326-20-55-15](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-15) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:05e7352f3a62b3b72dd23aa5a1fd6513c7ee04f2420b7e4bca6cccf519d64dfd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance addresses application of the term _[credit quality indicator](https://asc.understandingaccounting.org/glossary/c/#credit-quality-indicator "A statistic about the credit quality of a financial asset.")_. Examples of credit quality indicators include all of the following: 1. a Consumer credit risk scores 2. b Credit-rating-agency ratings 3. c An entity's internal credit risk grades 4. d Debt-to-value ratios 5. e Collateral 6. f Collection experience 7. g Other internal metrics. ##### [326-20-55-16](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-16) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:82b83690b88c241744360333baf6235a13444a4633947695fcbcccdbd1aecee7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity should use judgment in determining the appropriate credit quality indicator for each [class of financing receivable](https://asc.understandingaccounting.org/glossary/c/#class-of-financing-receivable "A group of financing receivables determined on the basis of both of the following:Risk characteristics of the financing receivableAn entity's method for monitoring and assessing credit risk.See paragraphs 326-20-55-11326-20-55-12326-20-55-13326-20-55-14 and 326-20-50-3.") and major security type. As of the balance sheet date, the entity should use the most current information it has obtained for each credit quality indicator. #### Illustrations ##### [326-20-55-17](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-17) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:872c2720de87d77fbfa36cf434e72fb9aec97b8981803b55ba173f001c4a1e6f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Examples illustrate certain initial and subsequent measurement guidance in this Subtopic to account for expected credit losses on financial assets: 1. a Example 1: Estimating expected credit losses using a loss-rate approach (collective evaluation) 2. b Example 2: Estimating expected credit losses using a loss-rate approach (individual evaluation) 3. c Example 3: Estimating expected credit losses on a vintage-year basis 4. d Example 4: Estimating expected credit losses using both a collective method and an individual asset method 5. e Example 5: Estimating expected credit losses for trade receivables using an aging schedule 6. f Example 6: Estimating expected credit losses—practical expedient for collateral-dependent financial assets 7. g Example 7: Estimating expected credit losses—practical expedient for financial assets with collateral maintenance provisions 8. h Example 8: Estimating expected credit losses when potential default is greater than zero, but expected nonpayment is zero 9. i Example 9: Recognizing writeoffs and recoveries 10. j Example 10: Applying expected credit losses to unconditionally cancellable loan commitments 11. k Example 11: Identifying purchased financial assets with credit deterioration 12. l Example 12: Recognizing purchased financial assets with credit deterioration 13. m Example 13: Using a loss-rate approach for determining expected credit losses and the discount rate on a purchased financial asset with credit deterioration 14. n Example 14: Using a discounted cash flow approach for determining expected credit losses and the discount rate on a purchased financial asset with credit deterioration 15. o Example 15: Disclosing credit quality indicators of financing receivables by amortized cost basis 16. p Example 16: Disclosing past-due status 17. q Example 17: Identifying similar risk characteristics in reinsurance recoverables 18. r Example 18: Determining the negative allowance for purchased financial assets with credit deterioration with no change in credit conditions 19. s Example 19: Determining the negative allowance for purchased financial assets with credit deterioration after a change in credit conditions. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)The following Examples illustrate certain initial and subsequent measurement guidance in this Subtopic to account for expected credit losses on financial assets: 1. a Example 1: Estimating expected credit losses using a loss-rate approach (collective evaluation) 2. b Example 2: Estimating expected credit losses using a loss-rate approach (individual evaluation) 3. c Example 3: Estimating expected credit losses on a vintage-year basis 4. d Example 4: Estimating expected credit losses using both a collective method and an individual asset method 5. e Example 5: Estimating expected credit losses for trade receivables using an aging schedule 6. ee Example 5A: Practical expedient and accounting policy election for estimating expected credit losses on current accounts receivable and current [contract assets](https://asc.understandingaccounting.org/glossary/c/#contract-asset "An entity's right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity's future performance).") 7. f Example 6: Estimating expected credit losses—practical expedient for collateral-dependent financial assets 8. g Example 7: Estimating expected credit losses—practical expedient for financial assets with collateral maintenance provisions 9. h Example 8: Estimating expected credit losses when potential default is greater than zero, but expected nonpayment is zero 10. i Example 9: Recognizing writeoffs and recoveries 11. j Example 10: Applying expected credit losses to unconditionally cancellable loan commitments 12. k Example 11: Identifying purchased financial assets with credit deterioration 13. l Example 12: Recognizing purchased financial assets with credit deterioration 14. m Example 13: Using a loss-rate approach for determining expected credit losses and the discount rate on a purchased financial asset with credit deterioration 15. n Example 14: Using a discounted cash flow approach for determining expected credit losses and the discount rate on a purchased financial asset with credit deterioration 16. o Example 15: Disclosing credit quality indicators of financing receivables by amortized cost basis 17. p Example 16: Disclosing past-due status 18. q Example 17: Identifying similar risk characteristics in reinsurance recoverables 19. r Example 18: Determining the negative allowance for purchased financial assets with credit deterioration with no change in credit conditions 20. s Example 19: Determining the negative allowance for purchased financial assets with credit deterioration after a change in credit conditions. ##### [326-20-55-18](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-18) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:701f8fb7bf7420af9ccd39f4f9e6b1c1101609e49bece6c46dc78c7fb3f55733 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates one way an entity may estimate expected credit losses on a portfolio of loans with similar risk characteristics using a loss-rate approach. ##### [326-20-55-19](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-19) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:fe3355a27e7de745dc3ecb6bd941e1c0d7338ac591881958c8003a34480852f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Community Bank A provides 10-year amortizing loans to customers. Community Bank A manages those loans on a collective basis based on similar risk characteristics. The loans within the portfolio were originated over the last 10 years, and the portfolio has an amortized cost basis of $3 million. ##### [326-20-55-20](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-20) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:d4696dde9c7cd3e86bc42e73b87cc6dbae2a8b68a6dafe72facfa967b61067d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After comparing historical information for similar financial assets with the current and forecasted direction of the economic environment, Community Bank A believes that its most recent 10-year period is a reasonable period on which to base its expected credit-loss-rate calculation after considering the underwriting standards and contractual terms for loans that existed over the historical period in comparison with the current portfolio. Community Bank A's historical lifetime credit loss rate (that is, a rate based on the sum of all credit losses for a similar pool) for the most recent 10-year period is 1.5 percent. The historical credit loss rate already factors in prepayment history, which it expects to remain unchanged. Community Bank A considered whether any adjustments to historical loss information in accordance with paragraph [326-20-30-8](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-8) were needed, before considering adjustments for current conditions and reasonable and supportable forecasts, but determined none were necessary. ##### [326-20-55-21](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-21) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e3088179e249c4d2aba903061b889ab5210ddacbf9a88aa57c08035d734d781f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [326-20-55-4](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-4), Community Bank A considered significant factors that could affect the expected collectibility of the amortized cost basis of the portfolio and determined that the primary factors are real estate values and unemployment rates. As part of this analysis, Community Bank A observed that real estate values in the community have decreased and the unemployment rate in the community has increased as of the current reporting period date. Based on current conditions and reasonable and supportable forecasts, Community Bank A expects that there will be an additional decrease in real estate values over the next one to two years, and unemployment rates are expected to increase further over the next one to two years. To adjust the historical loss rate to reflect the effects of those differences in current conditions and forecasted changes, Community Bank A estimates a 10-basis-point increase in credit losses incremental to the 1.5 percent historical lifetime loss rate due to the expected decrease in real estate values and a 5-basis-point increase in credit losses incremental to the historical lifetime loss rate due to expected deterioration in unemployment rates. Management estimates the incremental 15-basis-point increase based on its knowledge of historical loss information during past years in which there were similar trends in real estate values and unemployment rates. Management is unable to support its estimate of expectations for real estate values and unemployment rates beyond the reasonable and supportable forecast period. Under this loss-rate method, the incremental credit losses for the current conditions and reasonable and supportable forecast (the 15 basis points) is added to the 1.5 percent rate that serves as the basis for the expected credit loss rate. No further reversion adjustments are needed because Community Bank A has applied a 1.65 percent loss rate where it has immediately reverted into historical losses reflective of the contractual term in accordance with paragraphs [326-20-30-8 through 30-9](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-8) . This approach reflects an immediate reversion technique for the loss-rate method. ##### [326-20-55-22](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-22) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:f13128e5ccd7dd821a22531860d5e360920040dae41a04c1cb32002e0e69f728 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The expected loss rate to apply to the amortized cost basis of the loan portfolio would be 1.65 percent, the sum of the historical loss rate of 1.5 percent and the adjustment for the current conditions and reasonable and supportable forecast of 15 basis points. The allowance for expected credit losses at the reporting date would be $49,500. ##### [326-20-55-23](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-23) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:b2bb18d3439a6040795c4173b69c58e756f46b6e52a10ca74a64c4b4ac0ec89f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates one way an entity may estimate expected credit losses on an individual loan using a loss-rate approach when no loans with similar risk characteristics exist. ##### [326-20-55-24](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-24) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:3909eb837e62cd3955cbca4fb86281ac8b8cdf99e4234ee11bdd651df41b164e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Community Bank B principally provides residential real estate loans to borrowers in the community. In the current year, Community Bank B expanded a program to originate commercial loans. Community Bank B has a few commercial loans outstanding at period end. In evaluating the loans, Community Bank B determines that one of the commercial loans does not share similar risk characteristics with other loans outstanding; therefore, Community Bank B believes that it is inappropriate to pool this commercial loan for purposes of determining its allowance for credit losses. This commercial loan has an amortized cost of $1 million. Historical loss information for commercial loans in the community with similar risk characteristics shows a 0.50 percent loss rate over the contractual term. ##### [326-20-55-25](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-25) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e0b5dfb20f6a9e1af29809e254aa7ab88d0754a4bd60140575bbeaf5ee4cce18 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Community Bank B considers relevant current conditions and reasonable and supportable forecasts that relate to its lending practices and environment and the specific borrower. Community Bank B determines that the significant factors affecting the performance of this loan are borrower-specific operating results and local unemployment rates. Community Bank B considers other qualitative factors including national macroeconomic conditions but determines that they are not significant inputs to the loss estimates for this loan. ##### [326-20-55-26](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-26) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:140bcc3d82ded6d4cafecf7e183d8007191892fcb6264854894ea6e042e23bfc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Community Bank B is able to reasonably forecast local unemployment rates and borrower-specific financial results for one year only. Community Bank B's reasonable and supportable forecasts of those factors indicate that local unemployment rates are expected to remain stable (based on the main employer in the community continuing to operate normally) and that there will be a deterioration in the borrower's financial results (based on an evaluation of rent rolls). Management determines that no adjustment is necessary for local unemployment rates because they are expected to be consistent with the conditions in the 0.50 percent loss-rate estimate. However, the current and forecasted conditions related to borrower-specific financial results are different from the conditions in the 0.50 percent loss-rate estimate, based on borrower-specific information. Community Bank B determines that an upward adjustment of 10 basis points that is incremental to the historical lifetime loss information is appropriate based on those factors. Management estimates the 10-basis-point adjustment based on its knowledge of commercial loan loss history in the community when borrowers exhibit similar declines in financial performance. Management is unable to support its estimate of expectations for local unemployment and borrower-specific financial results beyond the reasonable and supportable forecast period. Under this loss-rate method, Community Bank B applies the same immediate reversion technique as in Example 1, where Community Bank B has immediately reverted into historical losses reflective of the contractual term in accordance with paragraphs [326-20-30-8 through 30-9](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-8) . ##### [326-20-55-27](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-27) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:06c68e9d4c5f502fbed1df3eef96521f4f38e33d1fda0a26d2f5a51915364ca7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The historical loss rate to apply to the amortized cost basis of the individual loan would be adjusted an incremental 10 basis points to 0.60 percent. The allowance for expected credit losses for the reporting period date would be $6,000. ##### [326-20-55-28](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-28) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:17b1b28a88045cd806be08fa3b63010a63e029599e8dee4578280a7e1654b835 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Example illustrates one way an entity might estimate the expected credit losses on a vintage-year basis. ##### [326-20-55-29](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-29) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e03184ad8bebe5d2b52ac5a3d5f3f770129de77fda3b639c56bc461c5f707410 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank C is a lending institution that provides financing to consumers purchasing new or used farm equipment throughout the local area. Bank C originates approximately the same amount of loans each year. The four-year amortizing loans it originates are secured by collateral that provides a relatively consistent range of loan-to-collateral-value ratios at origination. If a borrower becomes 90 days past due, Bank C repossesses the underlying farm equipment collateral for sale at auction. ##### [326-20-55-30](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-30) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:0b957cd6b4fc992561f4047bcaf27988485fe4f0d42186f49ac9870546179943 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank C tracks those loans on the basis of the calendar year of origination. The following pattern of credit loss information has been developed (represented by the nonshaded cells in the accompanying table) based on the amount of amortized cost basis in each vintage that was written off as a result of credit losses. - ![](https://asc.understandingaccounting.org/asc-img/GUID-94DAEBAA-9A70-49A7-A5E7-A0DC1BFC6BB9-low.gif) Year of Origination Loss Experience in Years Following Origination Year 1 Year 2 Year 3 Year 4 Total Expected 20X1 $50 $120 $140 $30 $340 - 20X2 $40 $120 $140 $40 $340 - 20X3 $40 $110 $150 $30 $330 - 20X4 $60 $110 $150 $40 $360 - 20X5 $50 $130 $170 $50 $400 - 20X6 $70 $150 $180 $60 $460 $60 20X7 $80 $140 $190 $70 $480 $260 20X8 $70 $150 $200 $80 $500 $430 20X9 $70 $160 $200 $80 $510 $510 ##### [326-20-55-31](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-31) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:9a8a6a3ce07d137ce214a1d0aaebbf3060ded2a117f6e6ed7d2238d8dbdcf2ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In estimating expected credit losses on the remaining outstanding loans at December 31, 20X9, Bank C considers its historical loss information. It notes that the majority of losses historically emerge in Year 2 and Year 3 of the loans. It notes that historical loss experience has worsened since 20X3 and that loss experience for loans originated in 20X6 has already equaled the loss experience for loans originated in 20X5 despite the fact that the 20X6 loans will be outstanding for one additional year as compared with those originated in 20X5. In considering current conditions and reasonable and supportable forecasts, Bank C notes that there is an oversupply of used farm equipment in the resale market that is expected to continue, thereby putting downward pressure on the resulting collateral value of equipment. It also notes that severe weather in recent years has increased the cost of crop insurance and that this trend is expected to continue. On the basis of those factors, Bank C determines adjustments to historical loss information for current conditions and reasonable and supportable forecasts. The remaining expected losses (represented by the shaded cells in the table in paragraph [326-20-55-30](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-30) in each respective year) reflect those adjustments, and Bank C arrives at expected losses of $60, $260, $430, and $510 for loans originated in 20X6, 20X7, 20X8, and 20X9, respectively. Therefore, the allowance for credit losses for the reporting period date would be $1,260. ##### [326-20-55-32](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-32) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:605cd2472858176abde9f604be13395a1c974e1901bd8049174fb5ad32bc3e4f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates a situation in which loans with credit deterioration are evaluated individually because they no longer exhibit risk characteristics similar to other loans. There is no requirement to evaluate financial assets individually when a certain level of credit deterioration has occurred. However, the assessment of whether financial assets exhibit similar risk characteristics should be based on the relevant and appropriate facts and circumstances. ##### [326-20-55-33](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-33) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:0b80249d2701fd3c9636614906b4a5ffb52f746ddf2a26462beda460b2370e7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may estimate expected credit losses for some financial assets on a collective (pool) basis and may estimate expected credit losses for other assets on an individual basis when similar risk characteristics do not exist. As a result, the method used to estimate expected credit losses for a financial asset may change over time. For example, a pool of homogeneous loans may initially use a loss-rate method, but certain individual loans no longer may have similar risk characteristics because of credit deterioration. When a financial asset no longer shares similar risk characteristics with the original pool of financial assets, an entity should evaluate that financial asset to determine whether it shares risk characteristics similar to other pools of loans. Expected credit losses of that financial asset should be measured individually if there are no similar risk characteristics with other loans. A discounted cash flow approach is one method to estimate expected credit losses of individual loans, but it is not a required method. Paragraphs [326-20-55-34 through 55-36](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-34) illustrate those concepts. ##### [326-20-55-34](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-34) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:8452c5eaf047f502b7a2dca159a6f8c26ae6df1ba35f832e267fc3e6a9b96438 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. One loan program from Bank D provides unsecured commercial loans of up to $75,000 to small businesses and entrepreneurs. Given the relative homogeneity of the borrowers (in terms of credit risk) and loans (in terms of type, amount, and underwriting standards) in the program, Bank D manages this loan program on a collective basis. However, Bank D concludes that the loss estimates for loans with credit deterioration is based on borrower-specific facts and circumstances because the repayment of those loans depends on facts and circumstances unique to each borrower. Therefore, Bank D estimates expected credit losses on an individual basis for loans that no longer exhibit similar risk characteristics because of credit deterioration. A loss-rate method for estimating expected credit losses on a pooled basis is applied for the loans in the portfolio segment that continue to exhibit similar risk characteristics. ##### [326-20-55-35](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-35) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:f3b7d5e86f06e6d8c104215e5626001a476380f9540e8966137f3b37fbeeda85 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To estimate expected credit losses for individual loans without similar risk characteristics, Bank D uses a discounted cash flow method for each loan. Frequently, Bank D has insight into the likelihood of a credit loss as a result of information provided by the borrower and recent discussions with the borrower given the elevated credit risk for these loans. Under a discounted cash flow method, the allowance for credit losses is estimated as the difference between the amortized cost basis and the present value of cash flows expected to be collected. ##### [326-20-55-36](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-36) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:89813427a37a7c1836b0a840c87e12f34ecb645283875005d82161796414021f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To estimate expected credit losses for the remainder of the loans that continue to exhibit similar risk characteristics, Bank D considers historical loss information (updated for current conditions and reasonable and supportable forecasts that affect the expected collectibility of the amortized cost basis of the pool) using a loss-rate approach. ##### [326-20-55-37](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-37) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:824847e87d9898853017b9e821964dbb688a864a76abaaac8ff81620352f2c75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates one way an entity may estimate expected credit losses for trade receivables using an aging schedule. ##### [326-20-55-38](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-38) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:642ae237493a8b651f1d369023a69409c95e3cdb7754b437e3f77a830202f86d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity E manufactures and sells products to a broad range of customers, primarily retail stores. Customers typically are provided with payment terms of 90 days with a 2 percent discount if payments are received within 60 days. Entity E has tracked historical loss information for its trade receivables and compiled the following historical credit loss percentages: 1. a 0.3 percent for receivables that are current 2. b 8 percent for receivables that are 1-30 days past due 3. c 26 percent for receivables that are 31-60 days past due 4. d 58 percent for receivables that are 61-90 days past due 5. e 82 percent for receivables that are more than 90 days past due. ##### [326-20-55-39](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-39) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:a271501b26a9708374fae26d871c528b94c02d2e84a2e9d012cafbc1c48a9b6b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity E believes that this historical loss information is a reasonable base on which to determine expected credit losses for trade receivables held at the reporting date because the composition of the trade receivables at the reporting date is consistent with that used in developing the historical credit-loss percentages (that is, the similar risk characteristics of its customers and its lending practices have not changed significantly over time). However, Entity E has determined that the current and reasonable and supportable forecasted economic conditions have improved as compared with the economic conditions included in the historical information. Specifically, Entity E has observed that unemployment has decreased as of the current reporting date, and Entity E expects there will be an additional decrease in unemployment over the next year. To adjust the historical loss rates to reflect the effects of those differences in current conditions and forecasted changes, Entity E estimates the loss rate to decrease by approximately 10 percent in each age bucket. Entity E developed this estimate based on its knowledge of past experience for which there were similar improvements in the economy. ##### [326-20-55-40](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:0e739af20c01bc3a434d4395c1494feaa2ea005018fc59eb55511731fbb02477 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the reporting date, Entity E develops the following aging schedule to estimate expected credit losses. - ![](https://asc.understandingaccounting.org/asc-img/GUID-20C78F84-857F-4799-9BC9-F47D50606FC3-low.gif) Past-Due Status Amortized Cost Basis Credit Loss Rate Expected Credit Loss Estimate Current " $5,984,698 " 0.27% " $16,159 " 1-30 days past due " 8,272 " 7.2% 596 31-60 days past due " 2,882 " 23.4% 674 61-90 days past due 842 52.2% 440 More than 90 days past due " 1,100 " 73.8% 812 " $5,997,794 " " $18,681 " ##### [326-20-55-40A](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40A) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e4d3d680bb8f4be3a7af7b7f63174a327bc16cb236dfd21903a357567d7c4b2d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)This Example illustrates how to apply the practical expedient and accounting policy election for estimating credit losses on current accounts receivable and current contract assets arising from transactions accounted for under Topic 606 on revenue from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with [customers](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") in accordance with paragraphs [326-20-30-10A through 30-10H](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-10A) . The accounting policy election to consider subsequent collection activity described in paragraphs [326-20-30-10E through 30-10H](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-10E) is applicable only to entities other than [public business entities](https://asc.understandingaccounting.org/glossary/p/#public-business-entity "A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."). Assume that Entity R is not a public business entity and does not have any contract assets. ##### [326-20-55-40B](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40B) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:f795f830c0cc9eccf10b31864bd813f5f166fee27c98208c90a4dd2a281e1ae5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R manufactures and sells products to a broad range of customers that are primarily retail stores. Entity R provides customers with payment terms of 30 days. Entity R recognizes revenue and corresponding accounts receivable related to the sale of products in accordance with Topic 606 (referred to as "receivable(s)" in the remainder of this Example). Entity R monitors payment activity and, for purposes of estimating expected credit losses, classifies outstanding receivables on the basis of the number of days past due (delinquency) when a receivable has not been collected in accordance with the payment terms. Delinquent receivables are assessed to determine whether they continue to share similar risk characteristics with other receivables in the portfolio. Entity R uses its historical collection information to calculate a credit loss rate for each portfolio segment of receivables. ##### [326-20-55-40C](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40C) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:6beecaf4da66afb0b3550c99647e599b56ff628baaf1362c4a9229d4d4ce57f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)On December 31, 20X0, the outstanding balance and historical credit loss rates for each portfolio segment of Entity R’s receivables are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-2283E087-0446-4AF8-B37E-58F096B009C7-low.gif) Past-Due Status Outstanding Receivables Balance Credit Loss Rate Current " $5,984,698 " 0.3% 1-30 days past due " 8,272 " 8% 31-60 days past due " 2,882 " 26% 61-90 days past due 841 58% 91-120 days past due 554 82% More than 120 days past due 342 99% Total " $5,997,589 " ##### [326-20-55-40D](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40D) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:df1c3e09340d64eee6281032bef309372f433f904b1f607b4be491ddd1869881 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R has determined that its historical loss rates are a reasonable basis on which to estimate expected credit losses for outstanding receivables because of the similar risk characteristics of its customers (paragraph [326-20-30-8](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-8)) and because its payment terms have not changed significantly over time. Management determined that current conditions as of the balance sheet date are consistent with conditions that existed during the period that historical data were collected. ##### [326-20-55-40E](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40E) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:b1a421611c7a74e0f4d72c10ae39a733eba6574585bc21c59cf9d488c5284f3c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R elects the practical expedient in paragraphs [326-20-30-10C through 30-10D](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-10C) to estimate expected credit losses related to its receivables classified as current in accordance with paragraph [210-10-45-3](https://asc.understandingaccounting.org/asc/210/10/#210-10-45-3). The practical expedient allows Entity R to assume that current conditions as of the balance sheet date do not change for the remaining life of the assets. Entity R has determined that the current conditions as of the balance sheet date are consistent with those conditions that existed during the period that the historical data were collected. Accordingly, Entity R determines that no adjustment to its historical loss information is necessary. Entity R develops its estimate of expected credit losses as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-58DCDF27-901D-49FD-A659-BC9003688407-low.gif) Past-Due Status Outstanding Receivables Balance Credit Loss Rate Expected Credit Loss Estimate Current " $5,984,698 " 0.3% " $17,954 " 1-30 days past due " 8,272 " 8% 662 31-60 days past due " 2,882 " 26% 749 61-90 days past due 841 58% 488 91-120 days past due 554 82% 454 More than 120 days past due 342 99% 339 Total " $5,997,589 " " $20,646 " ##### [326-20-55-40F](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40F) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:9c9d675127db3ea95ac171a220693ba6cc531d8a0a832d51affc589047375d24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R discloses that it has elected the practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of the assets in accordance with the requirement in paragraph [326-20-50-12A](https://asc.understandingaccounting.org/asc/326/20/#326-20-50-12A). ##### [326-20-55-40G](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40G) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:6907d7a2f925f5f88b6df71243974260e9f644bb03259c00073965c72befb6e8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Assume the same facts and circumstances as Case 1, except that Entity R has an outstanding receivable balance of $2,000 aged 30-days past due at the balance sheet date from Customer S, who filed for bankruptcy on December 15, 20X0. The entirety of the balance is not expected to be collected. As a result, Entity R determines that the receivable due from Customer S no longer shares similar risk characteristics with receivables due from other customers. Therefore, Entity R measures expected credit losses from Customer S individually. ##### [326-20-55-40H](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40H) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:f2d5043cc0259f53c4fb82d2be6963e3e05e6a85c62413f14798ef2b194fd5ac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R has not identified other information that is expected to affect the collectibility of the remaining portfolio of receivables and estimates expected credit losses on the remaining portfolio collectively using the practical expedient. Entity R develops its estimate of expected credit losses as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-6C17479C-4074-4C16-A938-B8245B287D54-low.gif) Past-Due Status Outstanding Receivables Balance Credit Loss Rate Expected Credit Loss Estimate Current " $5,984,698 " 0.3% " $17,954 " 1-30 days past due " 6,272 " (a) 8% 502 31-60 days past due " 2,882 " 26% 749 61-90 days past due 841 58% 488 91-120 days past due 554 82% 454 More than 120 days past due 342 99% 339 Collectively assessed subtotal " 5,995,589 " " 20,486 " Individually assessed subtotal (Customer S) " 2,000 " " 2,000 " Total " $5,997,589 " " $22,486 " "(a) Outstanding receivable balance reduced by $2,000 to reflect individual assessment of Customer S." ##### [326-20-55-40I](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40I) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:127c63bcbcc731318f35e7f93c99f2b5f1f74d1411548120c11f551911bcdd43 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R discloses that it has elected the practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of the assets in accordance with the requirement in paragraph [326-20-50-12A](https://asc.understandingaccounting.org/asc/326/20/#326-20-50-12A). ##### [326-20-55-40J](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40J) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:4d8c403defce8953bd12925651a53e00b4dec072761f7dd927ca04e29d8f82ca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Assume the same facts and circumstances as Case 1, except that Entity R also elects to consider collection activity after the balance sheet date when estimating expected credit losses (that is, it elects to apply the accounting policy election in paragraphs [326-20-30-10E through 30-10H](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-10E) ). Entity R considers collection activity through March 1, 20X1, which is the date that the [financial statements are available to be issued.](https://asc.understandingaccounting.org/glossary/f/#financial-statements-are-available-to-be-issued "Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders. The process involved in creating and distributing the financial statements will vary depending on an entity's management and corporate governance structure as well as statutory and regulatory requirements.") ##### [326-20-55-40K](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40K) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:a02bb10ed583a894c2ac94da5ea031c3b07aee4c40c31160e6e0e3564aa5834f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R has not identified other information that is expected to affect the collectibility of its receivables other than the collection activity detailed in paragraph [326-20-55-40L](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40L). Entity R has not updated its historical credit loss rates for collection activity after the balance sheet date. ##### [326-20-55-40L](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40L) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:eb92cd54ce51dfde97b4d86b44e96be1786854c39a77cb3e8e02c02a03a99e7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R’s December 31, 20X0 financial statements are available to be issued on March 1, 20X1. Entity R has observed the following subsequent collection activity for all outstanding receivables as of the balance sheet date (December 31, 20X0). - ![](https://asc.understandingaccounting.org/asc-img/GUID-D9819509-6C31-48F4-A7DD-266BA33D717E-low.gif) Balance Sheet Date Date The Entity Has Selected To Consider Subsequent Collection Activity 12/31/20X0 3/1/20X1 Past-Due Status Outstanding Receivables Balance Collections between Balance Sheet Date and 3/1/20X1 Remaining Balance Uncollected Past-Due Status Credit Loss Rate " (a)" Expected Credit Loss Estimate Current " $5,984,698 " " $(5,925,118)" " $59,580 " 31-60 days past due 26% " $15,491 " 1-30 days past due " 8,272 " " (3,676)" " 4,596 " 61-90 days past due 58% " 2,666 " 31-60 days past due " 2,882 " (441) " 2,441 " 91-120 days past due 82% " 2,002 " 61-90 days past due 841 (300) 541 More than 120 days past due 99% 536 91-120 days past due 554 (149) 405 More than 120 days past due 99% 401 More than 120 days past due 342 (43) 299 More than 120 days past due 99% 296 Total " $5,997,589 " " $(5,929,727)" " $67,862 " " $21,392 " (a) Credit loss rate based on the collection status as of the date the entity has selected to consider subsequent collection activity. Entity R develops its estimate of expected credit losses by determining which receivables have been collected between the balance sheet date and the date that the entity has selected to consider subsequent collection activity (in this Case, March 1, 20X1) and by recognizing an allowance for the amounts that are uncollected based on its historical loss rates as of the balance sheet date that correspond to the uncollected balance’s delinquency status as of the date the entity has selected to consider subsequent collection activity (in this Case, March 1, 20X1). ##### [326-20-55-40M](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40M) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:948f9d8a3d98eb8e28ccb5cbe418772c294af393098cbdb541d087ecae0b6d95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R discloses that it has elected the practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of the assets and the accounting policy election to consider subsequent collection activity, along with the date through which collection activity was considered (in this Case, March 1, 20X1), in accordance with the requirements in paragraphs [326-20-50-12A through 50-12B](https://asc.understandingaccounting.org/asc/326/20/#326-20-50-12A) . ##### [326-20-55-40N](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40N) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:17424cc8776137b7927e052b8945266cab6dde456228aad15a584a869284e31d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Assume the same facts and circumstances as Case 1, except that Entity R also elects to consider collection activity after the balance sheet date when estimating expected credit losses (that is, it elects to apply the accounting policy election in paragraphs [326-20-30-10E through 30-10H](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-10E) ). Entity R considers subsequent collection activity through May 31, 20X1. ##### [326-20-55-40O](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40O) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:d1e6cbfaf4f1ea3f7a27b8f8230eac2fa0079d669d894a5a6e9903b199254f93 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R has not identified other information that is expected to affect the collectibility of its receivables other than the collection activity detailed in paragraph [326-20-55-40P](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40P). Entity R has not updated its historical credit loss rates for collection activity after the balance sheet date. ##### [326-20-55-40P](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40P) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:fe36f896ef1123264c6825f68bede40f46694c5e6bd6c86b6f4428ff4f7ed630 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R’s December 31, 20X0 financial statements are available to be issued on June 15, 20X1. As of May 31, 20X1, Entity R has observed the following collection activity for outstanding receivables as of the balance sheet date (December 31, 20X0). - ![](https://asc.understandingaccounting.org/asc-img/GUID-3B06479D-658C-4574-A0CE-D584ABA8B400-low.gif) Balance Sheet Date Date The Entity Has Selected To Consider Subsequent Collection Activity 12/31/20X0 5/31/20X1 Past-Due Status Outstanding Receivables Balance Collections between Balance Sheet Date and 5/31/20X1 Remaining Balance Uncollected Past-Due Status Credit Loss Rate " (a) " Expected Credit Loss Estimate Current " $5,984,698 " " $(5,968,449)" " $16,249 " More than 120 days past due 99% " $16,087 " 1-30 days past due " 8,272 " " (8,272)" - More than 120 days past due 99% - 31-60 days past due " 2,882 " " (2,279)" 603 More than 120 days past due 99% 597 61-90 days past due 841 (623) 218 More than 120 days past due 99% 216 91-120 days past due 554 (289) 265 More than 120 days past due 99% 262 More than 120 days past due 342 (145) 197 More than 120 days past due 99% 195 Total " $5,997,589 " " $(5,980,057)" " $17,532 " " $17,357 " (a) Credit loss rate based on the collection status as of the date the entity has selected to consider subsequent collection activity. As part of the estimate of expected credit losses, Entity R applies a credit loss rate of 99 percent to the receivables that are uncollected as of the date through which it considers subsequent collection activity (in this Case, May 31, 20X1) because all remaining amounts have been outstanding for more than 120 days. ##### [326-20-55-40Q](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-40Q) Pending content: yes Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:d457d17c93b9ed70da5db2d45c666e0864e526d511fe53c602474d1651dc4c70 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2025; (N) December 16, 2025Transition guidance: [326-10-65-6](https://asc.understandingaccounting.org/asc/326/10/#326-10-65-6)Entity R discloses that it has elected the practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of the assets and the accounting policy election to consider subsequent collection activity, along with the date through which collection activity was considered (in this Case, May 31, 20X1), in accordance with the requirements in paragraphs [326-20-50-12A through 50-12B](https://asc.understandingaccounting.org/asc/326/20/#326-20-50-12A) . ##### [326-20-55-41](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-41) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:45085342817e41ab310cfd86f0e8ef36cc6b0702ce75e3a220206cf9c79a9537 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates one way an entity may implement the guidance in paragraph [326-20-35-5](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-5) for estimating expected credit losses on a collateral-dependent financial asset for which the borrower is experiencing financial difficulty based on the entity's assessment. ##### [326-20-55-42](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-42) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e312bcee2aca3694857affcdeaaa4cb5dc260c57c82b5036c8eb24e28b1f3d5d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank F provides commercial real estate loans to developers of luxury apartment buildings. Each loan is secured by a respective luxury apartment building. Over the past two years, comparable standalone luxury housing prices have dropped significantly, while luxury apartment communities have experienced an increase in vacancy rates. ##### [326-20-55-43](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-43) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:796b28d05de2ee77ed2d81966bbc77b03bc2dfce866557f2a4768b0dc7aecb2e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of 20X7, Bank F reviews its commercial real estate loan to Developer G and observes that Developer G is experiencing financial difficulty as a result of, among other things, decreasing rental rates and increasing vacancy rates in its apartment building. ##### [326-20-55-44](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-44) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:2b7d36e40e5ba70b97ad1781d8a0549a7ec1010072b3b153a4ac87074f528ac3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After analyzing Developer G's financial condition and the operating statements for the apartment building, Bank F believes that it is unlikely Developer G will be able to repay the loan at maturity in 20X9. Therefore, Bank F believes that repayment of the loan is expected to be substantially through the foreclosure and sale (rather than the operation) of the collateral. As a result, in its financial statements for the period ended December 31, 20X7, Bank F utilizes the practical expedient provided in paragraph [326-20-35-5](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-5) and uses the apartment building's fair value, less costs to sell, when developing its estimate of expected credit losses. ##### [326-20-55-45](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-45) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e173de28882ddc3b06dadc4113c7aeeda2128d24d110503cb3e91fdab68dd0ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates one way an entity may implement the guidance in paragraph [326-20-35-6](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-6) for estimating expected credit losses on financial assets with collateral maintenance provisions. ##### [326-20-55-46](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-46) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:aad3bdd76a5f800958c86be1c0be33002fa5c64faabe0866fc70a3587d4f35c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank H enters into a reverse repurchase agreement with Entity I that is in need of short-term financing. Under the terms of the agreement, Entity I sells securities to Bank H with the expectation that it will repurchase those securities for a certain price on an agreed-upon date. In addition, the agreement contains a provision that requires Entity I to provide security collateral that is valued daily, and the amount of the collateral is adjusted up or down to reflect changes in the fair value of the underlying securities transferred. This collateral maintenance provision is designed to ensure that at any point during the arrangement, the fair value of the collateral continually equals or is greater than the amortized cost basis of the reverse repurchase agreement. ##### [326-20-55-47](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-47) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:4b3f79a1e9f0de5f119f45b4aa98c0a6f3799e34deaf68141f42c9425ec86bba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the first reporting period after entering into the agreement with Entity I, Bank H evaluates the reverse repurchase agreement's collateral maintenance provision to determine whether it can use the practical expedient in accordance with paragraph [326-20-35-6](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-6) for estimating expected credit losses. Bank H determines that although there is a risk that Entity I may default, Bank H's expectation of nonpayment of the amortized cost basis on the reverse repurchase agreement is zero because Entity I continually adjusts the amount of collateral such that the fair value of the collateral is always equal to or greater than the amortized cost basis of the reverse repurchase agreement. In addition, Bank H continually monitors that Entity I adheres to the collateral maintenance provision. As a result, Bank H uses the practical expedient in paragraph [326-20-35-6](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-6) and does not record expected credit losses at the end of the first reporting period because the fair value of the security collateral is greater than the amortized cost basis of the reverse repurchase agreement. Bank H performs a reassessment of the fair value of collateral in relation to the amortized cost basis each reporting period. ##### [326-20-55-48](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-48) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e9ad8ee44bebbf0dcadea3e089e32303aa6341c45bc76bade7db856fe538c26b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates one way, but not the only way, an entity may estimate expected credit losses when the expectation of nonpayment is zero. This example is not intended to be only applicable to U.S. Treasury securities. ##### [326-20-55-49](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-49) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:f2ab3a69a0b1810cffaf59e4aad42b41c210127e5abb6fd4b0ef065cd0a08fe6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity J invests in U.S. Treasury securities with the intent to hold them to collect contractual cash flows to maturity. As a result, Entity J classifies its U.S. Treasury securities as held to maturity and measures the securities on an amortized cost basis. ##### [326-20-55-50](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-50) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:3e50d2040301d829f01e10ef46c062b3261167fceb9f27479bf5908ee35e0954 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although U.S. Treasury securities often receive the highest credit rating by rating agencies at the end of the reporting period, Entity J's management still believes that there is a possibility of default, even if that risk is remote. However, Entity J considers the guidance in paragraph [326-20-30-10](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-10) and concludes that the long history with no credit losses for U.S. Treasury securities (adjusted for current conditions and reasonable and supportable forecasts) indicates an expectation that nonpayment of the amortized cost basis is zero, even if the U.S. government were to technically default. Judgment is required to determine the nature, depth, and extent of the analysis required to evaluate the effect of current conditions and reasonable and supportable forecasts on the historical credit loss information, including qualitative factors. In this circumstance, Entity J notes that U.S. Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity's currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly is viewed as a reserve currency, all of which qualitatively indicate that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, Entity J does not record expected credit losses for its U.S. Treasury securities at the end of the reporting period. The qualitative factors considered by Entity J in this Example are not an all-inclusive list of conditions that must be met in order to apply the guidance in paragraph [326-20-30-10](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-10). ##### [326-20-55-51](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-51) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:154ec58d66c2da2b78f15907e02389e4ec7790703d72b7f26bd720f3102e255e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates how an entity may implement the guidance in paragraphs [326-20-35-8 through 35-8A](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-8) relating to writeoffs and recoveries of expected credit losses on financial assets. ##### [326-20-55-52](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-52) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:d94244f7c3ae2182204c1d78f2a20e6c89a152c73efed8d91c16a58423efca3f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank K currently evaluates its loan to Entity L on an individual basis because Entity L is 90 days past due on its loan payments and the loan no longer exhibits similar risk characteristics with other loans in the portfolio. At the end of December 31, 20X3, the amortized cost basis for Entity L's loan is $500,000 with an allowance for credit losses of $375,000. During the first quarter of 20X4, Entity L issues a press release stating that it is filing for bankruptcy. Bank K determines that the $500,000 loan made to Entity L is uncollectible. Bank K considers all available information that is relevant and reasonably available, without undue cost or effort, and determines that the information does not support an expectation of a future recovery in accordance with paragraph [326-20-30-7](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-7). Bank K measures a full credit loss on the loan to Entity L and writes off its entire loan balance in accordance with paragraph [326-20-35-8](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-8), as follows: - ![](https://asc.understandingaccounting.org/asc-img/GUID-BACD167C-3BB9-4624-8C69-0BF0AF907947-low.gif) Credit loss expense "$125,000 " Allowance for credit losses "$125,000 " Allowance for credit losses "$500,000 " Loan receivable "$500,000 " During March 20X6, Bank K receives a partial payment of $50,000 from Entity L for the loan previously written off. Upon receipt of the payment, Bank K recognizes the recovery in accordance with paragraph [326-20-35-8](https://asc.understandingaccounting.org/asc/326/20/#326-20-35-8), as follows: - ![](https://asc.understandingaccounting.org/asc-img/GUID-5C0DDE05-B96A-4A15-AB6A-3B9A760DD8B6-low.gif) Cash "$50,000 " Allowance for credit losses (recovery) "$50,000 ##### [326-20-55-53](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-53) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:1e3adf56e37a94588700a7ef8ee468bf1f91041f7ce2395995d71a47ac52b93a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For its March 31, 20X6 financial statements, Bank K estimates expected credit losses on its financial assets and determines that the current estimate is consistent with the estimate at the end of the previous reporting period. During the period, Bank K does not record any change to its allowance for credit losses account other than the recovery of the loan to Entity L. To adjust its allowance for credit losses to reflect the current estimate, Bank K reports the following on March 31, 20X6: - ![](https://asc.understandingaccounting.org/asc-img/GUID-015AD83F-68AE-4907-8404-7E11F703CFD1-low.gif) Allowance for credit losses "$50,000 " Credit loss expense "$50,000 " Alternatively, Bank K could record the recovery of $50,000 directly as a reduction to credit loss expense, rather than initially recording the cash received against the allowance. ##### [326-20-55-54](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-54) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:09526ce79365a09950026fa268755a3a2c11c0019f7f5fb5035de959875454b8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in paragraph [326-20-30-11](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-11) for off-balance-sheet credit exposures that are unconditionally cancellable by the issuer. ##### [326-20-55-55](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-55) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:75fe6b3ef0cbfceb0e4bf9aaefdc7f0efd0897a1c53b28dde4a726bc6453d828 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank M has a significant credit card portfolio, including funded balances on existing cards and unfunded commitments (available credit) on credit cards. Bank M's card holder agreements stipulate that the available credit may be unconditionally cancelled at any time. ##### [326-20-55-56](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-56) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:77c22c800fb4ae5cc63f8f60ff163b499d9019c22beaced748f92fbad3b7a743 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When determining the allowance for credit losses, Bank M estimates the expected credit losses over the remaining lives of the funded credit card loans. Bank M does not record an allowance for unfunded commitments on the unfunded credit cards because it has the ability to unconditionally cancel the available lines of credit. Even though Bank M has had a past practice of extending credit on credit cards before it has detected a borrower's default event, it does not have a present contractual obligation to extend credit. Therefore, an allowance for unfunded commitments should not be established because credit risk on commitments that are unconditionally cancellable by the issuer are not considered to be a liability. ##### [326-20-55-57](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-57) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:750fd16dfb340b6475d3504c7c8b423221445a27028c24810c9ca8d7a74b357f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates factors that may be considered when assessing whether the purchased financial assets have more than an insignificant deterioration in credit quality since origination. ##### [326-20-55-58](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-58) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:509b054282da2bf71bd4fb387b3cde4aef324fab24996fabc3c74ab7ce423b51 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity N purchases a portfolio of financial assets subsequently measured at amortized cost basis with varying levels of credit quality. When determining which assets should be considered to be in the scope of the guidance for purchased financial assets with credit deterioration, Entity N considers the factors in paragraph [326-20-55-4](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-4) that are relevant for determining collectibility. ##### [326-20-55-59](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-59) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:f57024a7bbf63ad45541ac54e78265a1c041fbcb399078cdd873d9462645d2a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity N assesses what is more-than-insignificant credit deterioration since origination and considers the purchased assets with the following characteristics to be consistent with the factors that affect collectibility in paragraph [326-20-55-4](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-4). Entity N records the allowance for credit losses in accordance with paragraph [326-20-30-13](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-13) for the following assets: 1. a Financial assets that are delinquent as of the acquisition date 2. b Financial assets that have been downgraded since origination 3. c Financial assets that have been placed on nonaccrual status 4. d Financial assets for which, after origination, credit spreads have widened beyond the threshold specified in its policy. ##### [326-20-55-60](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-60) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:3f5cbeaab0c9dfa527e0c863122e930e2052f85343e0ec1d0f4aba377dd87baf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Judgment is required when determining whether purchased financial assets should be recorded as purchased financial assets with credit deterioration. Entity N's considerations represent only a few of the possible considerations. There may be other acceptable considerations and policies applied by an entity to identify purchased financial assets with credit deterioration. ##### [326-20-55-61](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-61) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e7a759badc85016766d0a1e3283008ce7d440ac65b286525ebfa4bc6b1a55072 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates application of the guidance to an individual purchased financial asset with credit deterioration. ##### [326-20-55-62](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-62) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:6a5bc9cac2d923a0611c188362ba333bc14d948e59ce25e47b4a78b87ef349d2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under paragraphs [326-20-30-13](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-13) and [310-10-35-53B](https://asc.understandingaccounting.org/asc/310/10/#310-10-35-53B), for purchased financial assets with credit deterioration, the discount embedded in the purchase price that is attributable to expected credit losses should not be recognized as interest income and also should not be reported as a credit loss expense upon acquisition. ##### [326-20-55-63](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-63) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:a8b0e4c452ddf93837cc9704c84919a2ff662f05cc5dfc6a6dffe8fdd2535fbb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank O records purchased financial assets with credit deterioration in its existing systems by recognizing the amortized cost basis of the asset, at acquisition, as equal to the sum of the purchase price and the associated allowance for credit loss at the date of acquisition. The difference between amortized cost basis and the par amount of the debt is recognized as a noncredit discount or premium. By doing so, the credit-related discount is not accreted to interest income after the acquisition date. ##### [326-20-55-64](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-64) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:def8ad18986ff4ab6a46d7cd94783c76478cbd5b433d2cda6472fec784eb8333 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that Bank O pays $750,000 for a financial asset with a par amount of $1 million. The instrument is measured at amortized cost basis. At the time of purchase, the allowance for credit losses on the unpaid principal balance is estimated to be $175,000. At the purchase date, the statement of financial position would reflect an amortized cost basis for the financial asset of $925,000 (that is, the amount paid plus the allowance for credit loss) and an associated allowance for credit losses of $175,000. The difference between par of $1 million and the amortized cost of $925,000 is a non-credit-related discount. The acquisition-date journal entry is as follows: - ![](https://asc.understandingaccounting.org/asc-img/GUID-A0DDC9C8-89A3-4E85-A63E-022DED808757-low.gif) Loan—par amount "$1,000,000 " Loan—noncredit discount " $75,000 " Allowance for credit losses " 175,000 " Cash " 750,000 " ##### [326-20-55-65](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-65) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:01d5ab4a359a26f002603fb6cf66153c6f557bd74d46d60dc550107cb2834931 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subsequently, the $75,000 noncredit discount would be accreted into interest income over the life of the financial asset consistent with other Topics. The $175,000 allowance for credit losses should be updated in subsequent periods consistent with the guidance in Section 326-20-35, with changes in the allowance for credit losses on the unpaid principal balance reported immediately in the statement of financial performance as a credit loss expense. ##### [326-20-55-66](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-66) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:0090c96e6a04cd989bc651198516760b373f6ad51bc45e64edadac9b8ac251cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance to determine the expected credit loss using a loss rate for an individual purchased financial asset with credit deterioration. The method applied to initially measure expected credit losses for purchased financial assets with credit deterioration generally would be applied consistently over time and should faithfully estimate expected credit losses for financial assets by applying this Subtopic. This does not mean that the application of a loss-rate approach is an irrevocable election. ##### [326-20-55-67](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-67) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e63ed60b6da5d2d518c94645c1fe726aea52fc6001c2c9441ae64144468c8656 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank P purchases a $5 million amortizing nonprepayable loan with a 6 percent coupon rate and original contract term of 5 years. All contractual principal and interest payments due of $1,186,982 for each of the first 3 years of the loan's life have been received, and the loan has an unpaid balance of $2,176,204 at the purchase date at the beginning of Year 4 of the loan's life. The original contractual amortization schedule of the loan is as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F3D6D8F0-B3F2-4CDD-A069-33B732CFB24C-low.gif) " 5,000,000 " 6% 5 "$1,186,982 " Original Amortization Table Period Beginning Balance Total Payment Interest Principal Ending Balance 1 " $5,000,000 " " $1,186,982 " " $300,000 " " $886,982 " " $4,113,018 " 2 " 4,113,018 " " 1,186,982 " " 246,781 " " 940,201 " " 3,172,817 " 3 " 3,172,817 " " 1,186,982 " " 190,369 " " 996,613 " " 2,176,204 " 4 " 2,176,204 " " 1,186,982 " " 130,572 " " 1,056,410 " " 1,119,794 " 5 " 1,119,794 " " 1,186,982 " " 67,188 " " 1,119,794 " - Totals " $5,934,910 " " $934,910 " " $5,000,000 " ##### [326-20-55-68](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-68) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:31647f1d58cf1e9ff499d15bf6bae9fbf0575b43f3d14b7dc8ba848c8d44343f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the purchase date, the loan is purchased for $1,918,559 because significant credit events have been discovered. The purchaser expects a 10 percent loss rate, based on historical loss information over the contractual term of the loan, adjusted for current conditions and reasonable and supportable forecasts, for groups of similar loans. In accordance with paragraph [326-20-30-14](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-14), as a result of the expected credit losses, the allowance is estimated as $217,620 by multiplying the 10 percent loss rate by the unpaid principal balance, or par amount, of the loan (see beginning balance in Year 4 in the table above). The following journal entry is recorded at the acquisition of the loan: - ![](https://asc.understandingaccounting.org/asc-img/GUID-B3DDB300-59EB-4443-A8EA-5E0D7F1FB747-low.gif) Loan " $2,176,204 " Loan—noncredit discount " $40,025 " Allowance for credit losses " 217,620 " Cash " 1,918,559 " ##### [326-20-55-69](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-69) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:0158b3c00b2dd153d9298f5625c2b7eaf39655cc6826a7652cf0c0f93236f8e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contractual interest rate is adjusted for the noncredit discount of $40,025 to determine the discount rate (consistent with paragraph [326-20-30-14](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-14)) of 7.33 percent, which excludes the purchaser's assessment of expected credit losses at the acquisition date. The 7.33 percent (rounded from 7.3344 percent) is computed as the rate that equates the amortized cost of $2,136,179 (computed by adding the purchase price of $1,918,559 to the gross-up adjustment of $217,620) with the net present value of the remaining contractual cash flows on the purchased asset ($1,186,982 in each of Years 4 and 5). ##### [326-20-55-70](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-70) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:2625a5496c0a09eaa3a3d0293da3dcc0824c9789710a4ade8717caed9cd2b8fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A default occurs in the last year of the loan's life. The amortization of the purchased loan would be recorded as follows for the periods after the purchase date in Years 4 and 5 of the loan's life. - ![](https://asc.understandingaccounting.org/asc-img/GUID-311DFB9B-91A7-4F74-BD80-85CF85926FA5-low.gif) Book Amortization Period Beginning Balance (a) Total Payment (b) Writeoff (c) Accrued Interest (d) Reduction (e) Ending Balance (f) 4 " $2,136,179 " "$1,186,982 " "$156,676 " "$1,030,306 " "$1,105,873 " 5 " 1,105,873 " " 969,362 " " $217,620 " " 81,109 " " 1,105,873 " - Totals " $2,156,344 " " $217,620 " " $237,785 " " $2,136,179 " (a) "The amortized cost at the purchase date is determined as the sum of the purchase price of $1,918,559 and the allowance for credit losses of $217,620." (b) The cash received is consistent with the expectations at the purchase date. (c) The writeoff represents the default in the final year of the loan that is written off. (d) The interest income recognized is determined by multiplying the beginning amortized cost by the discount rate of 7.33 percent (as determined in accordance with paragraph 326-20-55-69). (e) "The reduction of amortized cost is determined as the sum of the cash received (b) and writeoffs recognized (c) (if any), less the interest income recognized (d). The writeoff in Year 5 represents the difference between the contractual cash flows of $1,186,982 and the actual cash flows of $969,362." (f) "The ending amortized cost is equal to the beginning amortized cost (a), less the amortized cost reduction (e). ##### [326-20-55-71](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-71) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:b6d361c3c7c86c3e5bda34df32f8b1cf5868aeaa3721ceda1965839755c9f9f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The rollforward of the allowance would be as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-DE5726E9-7602-4B3D-A89B-1A328D558835-low.gif) Beginning allowance for credit losses " $217,620 " " Plus, credit loss expense " - " Less, writeoffs " " (217,620)" Ending allowance for credit losses $- ##### [326-20-55-72](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-72) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:716488e23901d1d5ddeb73c94d57c74721e81b7846e7252163add6b921fb0a9e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance to determine the expected credit loss using a discounted cash flow approach for an individual purchased financial asset with credit deterioration. The method applied to initially measure expected credit losses for purchased financial assets with credit deterioration generally would be applied consistently over time and should faithfully estimate expected credit losses for financial assets by applying this Subtopic. This does not mean that the application of a discounted cash flow approach is an irrevocable election. ##### [326-20-55-73](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-73) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:5443beb90b0429fba712076beaa0743071a32d9be7b022bf5233b5f4cf573ff2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example uses the same assumptions as in Example 13, as described in paragraphs [326-20-55-66 through 55-71](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-66) . ##### [326-20-55-74](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-74) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:755ccb4ecdf7ab473e530f938306d68d5051c315e9e5ebd9637e8b5f034f1d49 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To determine the discount rate in accordance with paragraph [326-20-30-14](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-14), the expected cash flows would be estimated and discounted at a rate that equates the purchase price with the present value of expected cash flows. The expected cash flows, including the considerations for current conditions and reasonable and supportable forecasts, are expected to be $1,186,982 in Year 4 and $969,362 in Year 5. The discount rate that equates the purchase price with the cash flows expected to be collected is 8.46 percent (rounded from 8.455 percent). This also is the same rate that equates the amortized cost basis (purchase price plus the acquisition date allowance for credit losses) with the net present value of the future contractual cash flows. ##### [326-20-55-75](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-75) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:5122f68c5691a0d78acb30fcdc7e848ba2b12c4389a28b04739f1af45ebea505 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To determine the allowance for credit losses at the purchase date, the expected credit loss (that is, the contractual cash that an entity does not expect to collect) is discounted using the discount rate of 8.46 percent. The expected credit loss is $217,620 in Year 5, as determined by finding the difference between the contractual cash flows of $1,186,982 and the expected cash flows of $969,362. The present value of the expected loss at the purchase date is $185,012. The journal entry to record the purchase of this loan is as follows: - ![](https://asc.understandingaccounting.org/asc-img/GUID-35E87568-015F-4ED6-9D2C-3E0B0215A7AB-low.gif) Loan " $2,176,204 " Loan—noncredit discount " $72,633 " Allowance for credit losses " 185,012 " Cash " 1,918,559 " ##### [326-20-55-76](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-76) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:cab1198a7a4b48e9a331001772670f68917505608a9575da48c506862a003c26 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amortization of the loan in the years following the purchase date is as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-5DD33FB1-F210-4651-90EC-BA1E0C2C46C6-low.gif) Book Amortization Period Beginning Balance (a) Total Payment (b) Writeoff (c) Accrued Interest (d) Reduction (e) Ending Balance (f) 4 " $2,103,571 " " $1,186,982 " " $177,857 " " $1,009,125 " " $1,094,446 " 5 " 1,094,446 " " 969,362 " " $217,620 " " 92,536 " " 1,094,446 " - Totals " $2,156,344 " " $217,620 " " $270,393 " " $2,103,571 " (a) "The amortized cost at the purchase date is determined as the sum of the purchase price of $1,918,559 and the allowance for credit losses of $185,012." (b) The cash received is consistent with the expectations at the purchase date. (c) The writeoff represents the default in the final year of the loan that is written off. (d) "The interest income recognized is determined by multiplying the beginning amortized cost by the discount rate of 8.46 percent (as determined in accordance with paragraph 326-20-55-74)." (e) "The reduction of amortized cost is determined as the sum of the cash received (b) and writeoffs recognized (c) (if any), less the interest income recognized (d). The writeoff in Year 5 represents the difference between the contractual cash flows of $1,186,982 and the actual cash flows of $969,362." (f) "The ending amortized cost is equal to the beginning amortized cost (a), less the amortized cost reduction (e)." ##### [326-20-55-77](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-77) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:8e17f55e10885b73fa9ae9a2651a4d5a3e4464c825b1aff1eca907a6d817fd13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Day 1 allowance established at the purchase date was $185,012. The allowance for credit losses was estimated on a discounted cash flow approach and, therefore, the allowance for credit losses needs to be adjusted for the time value of money. The rollforward of the allowance for credit losses is shown below. - ![](https://asc.understandingaccounting.org/asc-img/GUID-7764763B-79D5-435A-994E-23DCE15D3CFD-low.gif) Beginning allowance for credit losses " $185,012 " "Plus, credit loss expense" " 15,643 " (a) "Less, writeoffs" - Ending allowance for credit losses (Year 4) " 200,655 " "Plus, credit loss expense" " 16,965 " (a) "Less, writeoffs" " (217,620)" (b) Ending allowance for credit losses (Year 5) $- (a) The provision for credit losses in Years 4 and 5 is determined by multiplying the beginning allowance for credit losses by the discount rate of 8.46 percent to adjust for the time value of money. (b) "The writeoff represents the default in Year 5. The default is the difference between the Year 5 contractual cash flows of $1,186,982 and the actual cash flows received of $969,362. ##### [326-20-55-78](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-78) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:9ec69a49c5a030ed099cb3745d88739192f4632ab65ec9d77369d73e1d95c52f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The net income effect of a loss-rate approach illustrated in Example 13 and of a discounted cash flow approach illustrated in this Example is the same ($237,785 net income). The difference between the two approaches is that the Day 1 allowance for credit losses under a discounted cash flow approach explicitly reflects the time value of money. Therefore, it needs to be accreted to the future value of the loss that ultimately will occur. The change in the allowance for credit losses associated with the time value of money can be presented either as credit loss expense or as an adjustment to interest income in accordance with paragraph [326-20-45-3](https://asc.understandingaccounting.org/asc/326/20/#326-20-45-3). Therefore, the discounted cash flow approach, over the life of the asset, presents interest income as $270,393 but will require $32,608 ($15,643 in Year 4 plus $16,965 in Year 5) of credit loss expense to be recorded for the time value of money, resulting in net interest income after credit loss expense of $237,785. Under a loss-rate approach as illustrated in Example 13, interest income over the life of the asset is $237,785 but does not require credit loss expense to be recognized. ##### [326-20-55-79](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-79) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:f7ee96774e7e7d90dda408e6b2ff88a153b355535436a06d5b92dd6e567b68a2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Example illustrates the presentation of credit quality disclosures for a financial institution with a narrow range of loan products offered to local customers—both consumer and commercial. Depending on the size and complexity of an entity's portfolio of financing receivables, the entity may present disclosures that are more or less detailed than the following Example. An entity may choose other methods of determining the class of financing receivable and may determine different credit quality indicators that reflect how credit risk is monitored. Some entities may have more than one credit quality indicator for certain classes of financing receivables. - ![](https://asc.understandingaccounting.org/asc-img/GUID-9359A136-ADE1-4CC3-AE62-8E7CBE89F37B-low.gif) Term Loans Amortized Cost Basis by Origination Year "As of December 31, 20X5" 20X5 20X4 20X3 20X2 20X1 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Amortized Cost Basis Total Residential mortgage: Risk rating: 1–2 internal grade $- $- $- $- $- $- $- $- $- 3–4 internal grade - - - - - - - - - 5 internal grade - - - - - - - - - 6 internal grade - - - - - - - - - - 7 internal grade - - - - - - - - - Total residential mortgage loans $- $- $- $- $- $- $- $- $- Residential mortgage loans: Current-period gross writeoffs $- $- $- $- $- $- $- $- $- Consumer: Risk rating: 1–2 internal grade $- $- $- $- $- $- $- $- $- 3–4 internal grade - - - - - - - - - 5 internal grade - - - - - - - - - 6 internal grade - - - - - - - - - 7 internal grade - - - - - - - - - Total consumer $- $- $- $- $- $- $- $- $- Consumer loans: Current-period gross writeoffs $- $- $- $- $- $- $- $- $- Commercial business: Risk rating: 1–2 internal grade $- $- $- $- $- $- $- $- $- 3–4 internal grade - - - - - - - - - 5 internal grade - - - - - - - - - 6 internal grade - - - - - - - - - 7 internal grade - - - - - - - - - Total commercial business $- $- $- $- $- $- $- $- $- Commercial business loans: Current-period gross writeoffs $- $- $- $- $- $- $- $- $- Commercial mortgage: Risk rating: 1–2 internal grade $- $- $- $- $- $- $- $- $- 3–4 internal grade - - - - - - - - - 5 internal grade - - - - - - - - - 6 internal grade - - - - - - - - - 7 internal grade - - - - - - - - - Total commercial mortgage $- $- $- $- $- $- $- $- $- Commercial mortgage loans: Current-period gross writeoffs $- $- $- $- $- $- $- $- $- - ##### [326-20-55-80](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-80) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:3b6dbcd56f1e5858921d165579b9aa10305ddf096beabeef55081e8cf2c37d4d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates certain of the disclosures in paragraph [326-20-50-14](https://asc.understandingaccounting.org/asc/326/20/#326-20-50-14) by class of financing receivable. - ![](https://asc.understandingaccounting.org/asc-img/GUID-70538EC2-2239-4977-B51A-5E5332635061-low.gif) Age Analysis of Past-Due Financial Assets "As of December 31, 20X5, and 20X4" Past Due 30-59 Days 60-89 Days Greater Than 90 Days Total Current Total Amortized Cost > 90 Days and Accruing 20X5 Commercial " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " Commercial real estate: Commercial real estate construction " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Commercial real estate—other " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Consumer: Consumer—credit card " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Consumer—other " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Consumer—auto " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Residential: Residential—prime " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Residential—subprime " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Finance leases " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Total " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " 20X4 Commercial " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " " $XX,XXX " Commercial real estate: Commercial real estate construction " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Commercial real estate—other " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Consumer: Consumer—credit card " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Consumer—other " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Consumer—auto " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Residential: Residential—prime " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Residential—subprime " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " " XX,XXX " Finance leases ##### [326-20-55-81](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-81) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:e965defc3f5fbffba35ff94d655209335b3b1da0b6200e486ed7fee672b89811 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Reinsurance recoverables may comprise a variety of risks that affect collectibility including: 1. a Credit risk of the reinsurer/assuming company 2. b Contractual coverage disputes between the reinsurer/assuming company and the insurer/ceding company including contract administration issues 3. c Other noncontractual, noncoverage issues including reinsurance billing and allocation issues. ##### [326-20-55-82](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-82) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:572f9077dca44f963aa92a931cdac9242c7aba629b0d91b528a7f930307e2425 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic only requires measurement of expected losses related to the credit risk of the reinsurer/assuming company. ##### [326-20-55-83](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-83) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:1f995a131225c49fde914079c6d1a5086cefa901bc0fc6955ddc0bf6b5bc2a19 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In situations in which similar risk characteristics are not present in the reinsurance recoverables, the ceding insurer should measure expected credit losses on an individual basis. Similar risk characteristics may not exist because any one or a combination of the following factors exists, including, but not limited to: 1. a Customized reinsurance agreements associated with individual risk geographies 2. b Different size and financial conditions of reinsurers that may be either domestic or international 3. c Different attachment points among reinsurance agreements 4. d Different collateral terms of the reinsurance agreements (such as collateral trusts or letters of credit) 5. e The existence of state-sponsored reinsurance programs. ##### [326-20-55-84](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-84) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:70893cf0b3e8afb3b462ed44ccd67c474418261065fc32b8920df7c5db661532 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, similar risk characteristics may exist for certain reinsurance recoverables because any one or combination of the following exists: 1. a Reinsurance agreements that have standardized terms 2. b Reinsurance agreements that involve similar insured risks and underwriting practices 3. c Reinsurance counterparties that have similar financial characteristics and face similar economic conditions. ##### [326-20-55-85](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-85) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:c9d20176fd7f323c2aab1f57998cb8e6833b0d89aa8cd0947fa7b472d31ff0b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Judgment should be applied by ceding insurers in determining if and when similar risks exist within their reinsurance recoverables. ##### [326-20-55-86](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-86) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:956a39239a341c1aebdc91832a8d8b8ce1e31bcdf8c1bf404a37a1148c3265ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Example illustrates the application of the guidance in paragraph [326-20-30-13A](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-13A) for purchased financial assets with credit deterioration. For purposes of this Example, the acquired portfolio of loans is assumed to share similar risk characteristics and is evaluated for credit losses on a collective basis. ##### [326-20-55-87](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-87) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:4d594c962829351dfd921083f976d385c58439af9f9803808a563bcc9e2a1dd2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Bank Q purchases a portfolio of loans with a par amount of $10 million for $2 million. At acquisition, Bank Q expects to collect $2.5 million on the loan portfolio. Bank Q estimates expected credit losses using a method other than a discounted cash flow method in accordance with paragraph [326-20-30-4](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-4). The acquisition-date journal entry is as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-1EC47565-D3A8-4B74-99EF-60A14DF5688B-low.gif) Loan—par amount " $10,000,000 " Loan—noncredit discount " $500,000 " Allowance for credit losses " 7,500,000 " Cash " 2,000,000 " ##### [326-20-55-88](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-88) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:d1e3e49e5fd424a823ce74b76be73c0611543d0fb3aa4a6c459481335638b981 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After acquisition, Bank Q determines that each loan is deemed uncollectible on an individual unit-of-account basis and, therefore, writes off the loan portfolio. The following journal entries are recorded. - ![](https://asc.understandingaccounting.org/asc-img/GUID-77D2FFBA-2E3A-4835-9A29-0840D635E033-low.gif) Provision expense " $2,000,000 " Allowance for credit losses " $2,000,000 " Allowance for credit losses " $9,500,000 " Loan—noncredit discount " 500,000 " Loan—par amount " $10,000,000 " ##### [326-20-55-89](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-89) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:3a48bcd2d88d1d4c9187e4c5e5256517866bda81340cf8c48de192da3ad536a4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although deemed uncollectible on an individual basis, when grouped together, the group of loans is expected to have some recoveries on an aggregate basis. Therefore, Bank Q records a negative allowance in accordance with paragraph [326-20-30-13A](https://asc.understandingaccounting.org/asc/326/20/#326-20-30-13A). Because Bank Q's expectation of credit conditions has not changed since acquisition, the expected recoveries of $2.5 million must not result in the acceleration of the noncredit discount that existed immediately before being written off. Therefore, the following journal entry is recorded. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4DCAE764-ACD6-4E10-A0F8-B43752710FF2-low.gif) Allowance for credit losses " $2,000,000 " Provision expense " $2,000,000 " ##### [326-20-55-90](https://asc.understandingaccounting.org/asc/326/20/#326-20-55-90) Pending content: no Source downloaded (UTC): 2026-09-09T23:49:41.451Z to 2026-09-09T23:49:41.451Z Record version: sha256:eb0cb1c6ff8c195d780d42cf65dedb715ece4b99469312fa974152fb1a191a1a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts from Example 18. Bank Q subsequently determines that a change in credit conditions has occurred and expects to collect an additional $600,000 (for a total of $3.1 million) on the group of loans. Because Bank Q's expectation of credit conditions has changed and it is determining the amount that it expects to collect using a method other than a discounted cash flow method, the expected recoveries of $3.1 million would be reduced by the noncredit discount of $0.5 million (that has not been accreted). This would result in Bank Q having an overall negative allowance of $2.6 million. Therefore, the following journal entry is recorded. - ![](https://asc.understandingaccounting.org/asc-img/GUID-DF1BBC07-30DF-4C02-98C3-0F1349F3287D-low.gif) Allowance for credit losses " $600,000 " Provision expense " $600,000 "