allowance for credit losses

Assets5

1. 310-30Loans and Debt Securities Acquired with Deteriorated Credit Quality310 Receivables

   ASC 310-30 formerly governed loans and debt securities acquired with evidence of deteriorated credit quality (so-called purchased credit-impaired assets), where it was probable at acquisition that the investor would not collect all contractually required payments receivable; it required accreting the excess of expected cash flows over the initial investment into interest income as accretable yield and prohibited carrying over or creating a valuation allowance at acquisition. Every substantive paragraph of this subtopic has been superseded by Accounting Standards Update No. 2016-13 (CECL). Purchased financial assets with credit deterioration are now accounted for under Subtopics 326-20 and 326-30.

2. 310-954Health Care Entities310 Receivables

   ASC 310-954 governs how health care entities recognize, measure, present, and disclose receivables, principally amounts due from patients and third-party payors (Blue Cross, Medicare, Medicaid, HMOs, workers' compensation). Contractual adjustments and discounts are treated as variable consideration under ASC 606 (606-10-32-5 through 32-14 and 32-42 through 32-45), while an allowance for credit losses is measured under Topic 326. Charity care is never recognized as a receivable, and amounts due from third-party payors for retroactive adjustments such as final settlements or appeals must be reported separately.

3. 325-958Not-for-Profit Entities325 Investments—Other

   ASC 325-958 governs how not-for-profit entities account for "other investments"—those that are neither debt nor equity securities, derivatives, equity-method or consolidated investees, nor investments held by a financially interrelated entity—such as real estate, non-security mortgage notes, and oil and gas interests. Purchased other investments are initially measured at acquisition cost (including transaction fees) and contributed or agency-acquired ones at fair value. Subsequent measurement depends on the type of NFP: higher education institutions and voluntary health and welfare entities may elect carrying value or fair value, while other NFPs elect fair value or the lower of cost or fair value, applied consistently to all other investments.

4. 326-20Measured at Amortized Cost326 Financial Instruments—Credit Losses

   ASC 326-20 is the CECL (current expected credit loss) model for financial assets measured at amortized cost, net investments in leases, off-balance-sheet credit exposures, and reinsurance recoverables. At every reporting date an entity records an allowance (a valuation account deducted from amortized cost) equal to management's current estimate of all credit losses expected over the contractual term, based on past events, current conditions, and reasonable and supportable forecasts, with a reversion to historical loss information beyond the forecastable period (326-20-30-1, 30-6, 30-9). Assets are pooled when they share similar risk characteristics and evaluated individually only when they do not (326-20-30-2).

5. 326-30Available-for-Sale Debt Securities326 Financial Instruments—Credit Losses

   ASC 326-30 governs measurement of credit losses on debt securities classified as available-for-sale (AFS), including loans meeting the definition of debt securities classified as AFS. Unlike the pooled CECL model in 326-20, impairment is assessed at the individual security level: when fair value is below amortized cost, the entity determines how much of the decline is credit-related by comparing the present value of expected cash flows with amortized cost, records that amount as an allowance for credit losses (capped at the amount fair value is below amortized cost), and puts the remaining decline in other comprehensive income. If the entity intends to sell or more likely than not must sell before recovery, the allowance is written off and the security is written down to fair value through earnings.