ASC 326 Credit Losses (CECL)
ASC 326 is the US GAAP standard for credit losses. It introduced the current expected credit loss (CECL) model through ASU 2016-13, requiring companies to estimate expected credit losses over the life of financial assets from initial recognition.
Related Standards
Explanation
Under CECL, a company recognizes an allowance for the credit losses it expects over the contractual life of an asset, based on historical experience, current conditions, and reasonable and supportable forecasts.
The model applies to financial assets measured at amortized cost, including:
• trade receivables,
• contract assets arising from ASC 606,
• net investments in sales-type and direct financing leases.
ASU 2025-05, effective for annual periods beginning after December 15, 2025, allows a practical expedient for current accounts receivable and current contract assets from ASC 606: companies may assume that current conditions at the balance sheet date do not change over the remaining life of the asset.
Why It Matters
CECL requires reliable balances by customer, contract, and aging – including contract assets calculated in revenue accounting and lessors' lease receivables. Its IFRS counterpart is the expected credit loss model in IFRS 9.
Related Terms
IFRS 9 · Contract Asset · Net Investment in the Lease · ASC 606 · Collectibility
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