ASU 2025-05: What You Need to Know About the New Simplified Credit Loss Standard

Many entities often struggle with the complexity of the current expected credit losses (CECL) model, especially the requirement to forecast future economic conditions when estimating credit losses on accounts receivable. ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets,
issued on July 30, 2025, brings some relief with simpler options tailored to the short-term nature of most accounts receivable.

Here’s a quick overview of what your entity needs to know:

Two Key Elections

1. Current Conditions Practical Expedient (Available to all entities)

Instead of forecasting future economic conditions, entities may now assume that current conditions remain unchanged for the life of the receivable.

  • Eliminates the need to consider complex economic projections
  • Estimates rely on historical loss experience plus current known circumstances

2. Subsequent Collections Accounting Policy (Available to all entities other than public business entities)

Entities can now consider cash collected after year-end but before the financial statements are issued.

  • Any receivable collected during this period would eliminate the need for an allowance on those receivables
  • Only remaining uncollected amounts need credit loss evaluation
  • Using this policy, aging would reflect the receivable’s status as of the evaluation date, not year-end

This option better aligns credit loss estimates with actual payment activity, which is helpful for entities with reliable collection patterns.

Note: The current conditions practical expedient must be elected in order to elect the subsequent collections accounting policy.

What’s Covered and What’s Not

The new guidance applies only to:

  • Current accounts receivable
  • Current contract assets under ASC 606, Revenue from Contracts with Customers

Current assets are those expected to be realized in an operating cycle, generally 12 months.

This guidance does not apply to loan receivables, contributions receivable, grants, pledges, or other non-exchange receivables.

Have Questions? AHP Is Here to Help

If you would like to discuss how this ASU may affect your entity or how to implement the guidance, please contact
Stephanie Cleaver, CPA, Rebekah Kilpatrick, CPA, CRCM, or reach out to your AHP representative.