ASU 2025-05: the CECL practical expedient for receivables, worked through
The FASB’s simplification for trade receivables and contract assets, and the election private companies get with it. Below, the FASB’s four worked cases, run by the same calculator your aging report goes through. Bring the report and get the allowance, the journal entry and the note.
Credit loss allowance
Bring a loan tape or a receivables ageing.
Get the allowance, the journal entry and a draft disclosure note.
What it changes
The practical expedient, for any company. For current receivables and contract assets from contracts with customers, you may assume that conditions at the balance sheet date do not change over the rest of their life, instead of building a forecast (ASC 326-20-30-10C). You still adjust your loss history for conditions as they are: a customer in distress, looser credit terms, a recession already under way (30-10D).
The collections election, for private companies only. A company that is not a public business entity, and has elected the expedient, may also count what customers paid after the year end, up to the date the statements are available to be issued or an earlier date it picks (30-10E). What was paid by then carries no allowance. What is still unpaid is measured at the rate for how late it is by that date (30-10F) — which is why the election can raise the allowance as well as lower it.
The FASB's four cases, run here
Entity R, a private company with 30-day terms, holds $5,997,589 of receivables at December 31, 20X0 (ASC 326-20-55-40A to 55-40Q). Each figure below is computed by the calculator, not copied from the ASU, and the ASU’s own figure is shown beside it.
Example 5A, Case 1 — the ASU 2025-05 practical expedient ASC 326-20-55-40A onward
| Days past due | Receivables | Loss rate | Allowance |
|---|---|---|---|
| Current | $5,984,698 | 0.3% | $17,954.09 |
| 1–30 days past due | $8,272 | 8% | $661.76 |
| 31–60 days past due | $2,882 | 26% | $749.32 |
| 61–90 days past due | $841 | 58% | $487.78 |
| 91–120 days past due | $554 | 82% | $454.28 |
| More than 120 days past due | $342 | 99% | $338.58 |
| Total | $5,997,589 | $20,645.81 |
The example prints $20,646 — the sum, rounded to the whole dollar. The engine's $20,645.81 rounds to the same figure.
Case 2 — a customer in bankruptcy, measured on its own ASC 326-20-55-40G to 55-40I
| Measured | Here | The ASU |
|---|---|---|
| The rest of the book, on the aging schedule | $20,485.81 | $20,486 |
| Customer S, $2,000 of which nothing is expected | $2,000.00 | $2,000 |
| Allowance | $22,485.81 | $22,486 |
Customer S no longer shares the risk of the rest of the book, so its balance comes out of the 1–30 days category and is measured on its own. Rounded category by category, the rest comes to $20,486, as the ASU prints it.
Case 3 — collections counted through March 1 ASC 326-20-55-40J to 55-40M
| Days past due at Dec 31 | Collected by March 1 | Still unpaid | Days past due by then | Rate | Allowance |
|---|---|---|---|---|---|
| Current | $5,925,118 | $59,580 | 31–60 days | 26% | $15,490.80 |
| 1–30 days | $3,676 | $4,596 | 61–90 days | 58% | $2,665.68 |
| 31–60 days | $441 | $2,441 | 91–120 days | 82% | $2,001.62 |
| 61–90 days | $300 | $541 | Over 120 days | 99% | $535.59 |
| 91–120 days | $149 | $405 | Over 120 days | 99% | $400.95 |
| Over 120 days | $43 | $299 | Over 120 days | 99% | $296.01 |
| Total | $5,929,727 | $67,862 | $21,390.65 |
The example prints $21,392, each line rounded to the dollar and then added. Rounded line by line, the engine's figures add to the same $21,392; carried in cents, they come to $21,390.65. Without the election the same book carries $20,645.81, so counting collections raised the allowance by $744.84.
Case 4 — collections counted through May 31 ASC 326-20-55-40N to 55-40Q
| Days past due at Dec 31 | Collected by May 31 | Still unpaid | Days past due by then | Rate | Allowance |
|---|---|---|---|---|---|
| Current | $5,968,449 | $16,249 | Over 120 days | 99% | $16,086.51 |
| 1–30 days | $8,272 | $0 | Over 120 days | 99% | $0.00 |
| 31–60 days | $2,279 | $603 | Over 120 days | 99% | $596.97 |
| 61–90 days | $623 | $218 | Over 120 days | 99% | $215.82 |
| 91–120 days | $289 | $265 | Over 120 days | 99% | $262.35 |
| Over 120 days | $145 | $197 | Over 120 days | 99% | $195.03 |
| Total | $5,980,057 | $17,532 | $17,356.68 |
The example prints $17,357, each line rounded to the dollar and then added. Rounded line by line, the engine's figures add to the same $17,357; carried in cents, they come to $17,356.68. Without the election the same book carries $20,645.81, so counting collections lowered the allowance by $3,289.13.
How to use it here
- Upload your aging report as your system exported it, and choose US GAAP.
- On the last step, say whether you elected the practical expedient. The draft note states it either way (ASC 326-20-50-12A).
- If the company is private, you can then count collections: pick the date, and for each category say what was still unpaid by then. Where the day count settles which category an unpaid balance has reached, there is one box, labelled with it; where it could be in two, there is a box for each. The note discloses the date (50-12B).
What it will not do
- Offer the collections election to a public business entity.
- Update loss rates for what was collected. The standard permits that and does not require it (30-10G); the calculator uses the rates at the balance sheet date.
- Treat a category you left blank as fully paid. Type 0 where it was — silence is not an answer.
- Apply either choice to loans, lease receivables or receivables due after a year.
For the aging schedule itself, and the FASB’s Example 5, see the CECL calculator.
Questions
What does ASU 2025-05 cover?
- Current accounts receivable and current contract assets arising from contracts with customers under Topic 606 (ASC 326-20-30-10A). Loans, lease receivables and receivables due after more than a year — or the operating cycle, if that is longer — are outside it.
When is ASU 2025-05 effective?
- For annual reporting periods beginning after December 15, 2025, and the interim periods within them, so for a calendar-year company it is available from the year ending December 31, 2026. Both choices are elections, not requirements. It may be adopted early for statements not yet issued or made available for issuance, and it applies prospectively (ASC 326-10-65-6).
Does the practical expedient mean no adjustment to historical loss rates?
- No. It removes the forecast, not the adjustment for current conditions (ASC 326-20-30-10D). A customer in financial distress, credit extended to weaker customers, or a recession that began before the balance sheet date can still move the rates.
Can the collections election increase the allowance?
- Yes. What is still unpaid on the later date is measured at the rate for how late it is by then (ASC 326-20-30-10F). In the FASB's Case 3, current balances still unpaid on March 1 had become 31–60 days past due, and the allowance rose from $20,646 to $21,392.
Who can make the collections election?
- Only an entity that is not a public business entity, and only if it has also elected the practical expedient (ASC 326-20-30-10E). Once elected, both apply to all of its current receivables and contract assets in scope (30-10B).
What has to be disclosed?
- That the practical expedient was elected, or that both it and the collections election were (ASC 326-20-50-12A). With the election, in annual periods, the date through which collections were considered (50-12B). Changing that date is not a change in accounting principle (30-10H).