Trade receivables under CECL and the ASU 2025-05 expedient

• Build an aging-based loss matrix for trade receivables
• Apply the ASU 2025-05 practical expedient on current conditions
• Apply the subsequent collections election available to entities other than public business entities
• Identify the ASU 2025-05 effective date, transition and disclosures

Trade receivables are in scope

Receivables from Topic 606 contracts are financial assets at amortized cost and fall under 326-20 (326-20-15-2). Most commercial companies use an aging schedule: historical loss rates by delinquency bucket applied to current balances, adjusted for current conditions and forecasts. Customers with known distress are pulled out and evaluated individually.

Building the matrix:

1. Choose a lookback period long enough to cover a full collection cycle and some stress.
2. For each historical period-end, trace each aging bucket to its eventual write-off.
3. Compute the loss rate per bucket.
4. Adjust for current conditions and forecasts.
5. Apply to the current aging.

Why ASU 2025-05 exists

The Private Company Council started this project after private company stakeholders said that building macroeconomic forecasts for short-term receivables was costly and complex, and that reserving for balances collected before the statements were available to be issued produced allowances for amounts already received. ASU 2025-05, issued July 2025, responds with two reliefs for current accounts receivable and current contract assets from Topic 606 transactions, including those acquired in a business combination.

The practical expedient: all entities

Any entity may elect to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset (326-20-30-10C). This removes the need for a separate reasonable and supportable forecast for these short-term balances.

It is not permission to use raw history. Under 326-20-30-10D the entity still adjusts historical loss information for current conditions that history does not reflect. A known customer in distress, a loosened credit policy before year-end, or a recession that began before the balance sheet date all still require adjustment.

The accounting policy election: entities other than public business entities

An entity other than a public business entity that elects the expedient may also elect to consider collection activity after the balance sheet date, up to the date the statements are available to be issued or an earlier alternative date it selects (326-20-30-10E). The sequence under 326-20-30-10F:

1. Balances collected before that date get no allowance.
2. Remaining uncollected balances are evaluated using the practical expedient, based on their delinquency status as of that date.

An entity using an aging schedule may, but need not, update historical loss rates for the subsequent collection activity (326-20-30-10G). Changing the date through which collections are considered is not a change in accounting principle (326-20-30-10H).

Current means current

The relief applies only to current balances. An entity uses a one-year period unless its operating cycle is longer (326-20-30-10B). A two-year receivable on extended terms stays under the full model. Once elected, the expedient and the policy election apply consistently to all current accounts receivable and current contract assets from Topic 606 transactions, not customer by customer.

Effective date, transition and disclosure

The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim periods within them. Early adoption is permitted in periods for which statements have not been issued or made available for issuance. Application is prospective. An entity other than a public business entity that elects after the effective date does not need a preferability assessment.

The entity discloses that it elected the expedient, and if applicable the election (326-20-50-12A). An entity other than a public business entity that elects to consider subsequent collections discloses in annual periods the date through which it considered them (326-20-50-12B).

The ASU 2025-05 standard page has more detail.

Applying the election at Juniper Ridge Electrical Supply, Inc.