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1. What are credit losses?
1. What are credit losses?
Credit losses are losses due to failure by customers to pay amounts owed for purchase of goods or services; also called bad debts, impairments of receivables, and uncollectible accounts.
2. What is the Current Expected Credit Loss (CECL) model?
2. What is the Current Expected Credit Loss (CECL) model?
Companies estimate the necessary balance in the allowance for uncollectible accounts using the CECL (Current Expected Credit Loss) model. The model does not specify a particular method for estimating bad debts ("credit losses"). Rather, it allows a company to apply any method that reasonably captures its expectation of credit losses, so that the resulting carrying value of net accounts receivable renects the cash the company expects to collect. That estimate should consider all receivables and be based on all relevant information, including historical experience, current conditions, and reasonable and supportable forecasts. Estimation could be done by analyzing each customer account, by applying an estimate of the percentage of bad debts to the entire outstanding receivable balance, or by applying different percentages to accounts receivable balances depending on the length of time outstanding.
3. What is the allowance method?
3. What is the allowance method?
4. What is the direct write-off method?
4. What is the direct write-off method?
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