Allowance for credit losses
In accounting, allowance for credit losses means the contra-asset holding the expected credit losses on receivables, so AR is presented at the amount expected to be collected.
- Layer
- Lexicon
- Defined in
- Lexicon
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Authority
This definition follows ASC 326-20.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
For founders
The same idea written for a founder: what it costs a startup that ignores it, and what to do in a real month.
- Bad debt and write-offs: allowance vs direct methodHow to book a customer who won’t pay: the GAAP allowance under ASC 326, the direct write-off the IRS requires, and what to do if the money comes back.
- AR aging and collections: a practical guide for startupsHow to read an AR aging, work out DSO, run a dunning cadence, record a promise to pay, escalate a late account and clear unapplied cash.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- bad debt reserve
- allowance for doubtful accounts (pre-CECL)
Nearby in the catalog
No component names this concept outright. These are the ones in its part of the system, which is a weaker claim — but a component nothing links to is a component nobody finds.
Terms this one depends on
Also in Receivables
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
- Journal entry for bad debt expenseUnder the allowance method, at each period-end debit Credit loss expense (bad debt expense) and credit Allowance for credit losses for the amount needed to bring the allowance to the expected loss on open receivables.Entry
- Journal entry for writing off accounts receivableTo write off an uncollectible invoice under the allowance method, debit Allowance for credit losses and credit Accounts receivable. If the customer later pays, reinstate the receivable (debit Accounts receivable, credit Allowance) and record the cash.Entry
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.