Categories
Resources for Accountants

Current Expected Credit Loss Accounting [Video]

Current Expected Credit Loss Accounting

The FASB issued an accounting standard update (ASU 2016-13) on current expected credit losses (CECL) on June 16, 2016. Prior to this update, companies reported credit losses only when it was probable a loss had been incurred.

This “incurred loss method” became a problem during the 2008 financial crisis. Banks weren’t recognizing losses fast enough, as GAAP didn’t allow them to consider future developments. Thus, in spite of a bleak economic outlook, loan loss reserves weren’t being adjusted to account for the future expected losses.

Under the new CECL method, companies must incorporate information from forward-looking forecasts to estimate credit losses over the entire contractual life of the asset. In short, banks and other companies must now forecast future economic conditions and record expected credit losses. We are therefore shifting from an incurred-loss model to an expected-loss model, and this is intended to accelerate the recognition of impairments.

Now this accounting rule doesn’t just apply to banks. It applies to companies holding any of the following financial assets:
• Trade receivables
• Lease receivables from a sales-type or direct-financing lease
• Reinsurance receivables
• Receivables related to repurchase agreements
• Loans held for investment
• Held-to-maturity debt securities carried at amortized cost
• Some off balance sheet credit exposures like loan commitments and financial guarantees

Note that the CECL rules do NOT apply to:
• Loans held for sale
• Trading assets
• Financial assets for which the company has elected the fair value option
• Loans or receivables between entities under common control

So let’s talk about the journal entry that a company would record. If a company expects to have a future credit loss, it would:
• Record credit loss expense
• Record a credit loss allowance. The allowance account is a contra asset; you don’t reduce the asset directly

Credit loss expense 500
Allowance for expected credit losses 500

If circumstances later change and the company doesn’t believe it will have a credit loss, the company can simply reverse the entry. In any case, the balance sheet shows the net amount the company expects to collect. In rare cases, recognizing zero credit losses might be appropriate

So, how should a company measure the allowance?

The FASB didn’t mandate a specific method. Companies could use:
• Discounted cash flow methods
• Probability-of-default methods
• Loss-rate methods
• Roll-rate methods
• An aging schedule

It’s up to each company to develop its own estimation model. If a company has financial assets with similar risk characteristics (asset type, term, credit ratings, geography) it can pool those assets and evaluate them on a collective basis, and if the company ultimately finds that a financial asset is uncollectible, it should write the account off:

Allowance for expected credit losses 500
Financial asset 500

Now if you’re wondering about the international accounting rules:
The IASB adopted a similar credit loss model in 2014 (IFRS 9), so companies outside the U.S. also need to estimate future expected credit losses. However, there are differences between the international rules and U.S. rules, so make sure to refer to IFRS 9 if your company follows IFRS

Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education accessible to all people.

SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES
* http://eepurl.com/dIaa5z

HIRE THE CREATOR OF EDSPIRA: MICHAEL MCLAUGHLIN, PHD, CPA
* https://www.edspira.com/contact/

GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
* https://edspira.thinkific.com

LISTEN TO THE SCHEME PODCAST
* Apple Podcasts: https://podcasts.apple.com/us/podcast/scheme/id1522352725
* Spotify: https://open.spotify.com/show/4WaNTqVFxISHlgcSWNT1kc
* Website: https://www.edspira.com/podcast-2/

GET TAX TIPS ON TIKTOK
* https://www.tiktok.com/@prof_mclaughlin

ACCESS INDEX OF VIDEOS
* https://www.edspira.com/index

CONNECT WITH EDSPIRA
* Facebook: https://www.facebook.com/Edspira
* Instagram: https://www.instagram.com/edspiradotcom
* LinkedIn: https://www.linkedin.com/company/edspira

CONNECT WITH MICHAEL
* Twitter: https://www.twitter.com/Prof_McLaughlin
* LinkedIn: https://www.linkedin.com/in/prof-michael-mclaughlin

ABOUT EDSPIRA AND ITS CREATOR
* https://www.edspira.com/about/

Watch/Read More
Categories
Resources for Accountants

Consideration of Illegal Acts [Video]

Have you ever considered the number of rules and regulations a company must adhere to as part of its business operations? Well, it’s a lot, which is why companies have legal counsel! But if you are an auditor, are you responsible for knowing the ins and outs of these various rules and regulations? Are you, as an auditor, required to perform procedures around these rules and regulations? What if somebody at your client purposely violates these rules and regulations – what do you do then? These are all great questions and are all covered in this CPE-eligible (0.5 CPE) eLearning course about the responsibilities of an auditor relating to laws and regulations in a financial statement audit, including what to do when noncompliance (i.e., an illegal act) is discovered. Check it out here: Coming Soon! Learn more about GAAP Dynamics: https://www.gaapdynamics.com/ Check out our other online courses on the GAAP Dynamics Learning Library: https://www.gaapdynamics.com/individu... Subscribe to GAAP Dynamics to see more videos like these!

Categories
Resources for Accountants

How to Spot Danger in a Positive Cash Flow Statement [Video]

Learn the skills needed for a CFO role: https://controller-academy.com/bundles/cfo-bundle Download file shown in the video: https://thefincontroller.com/p/cash-flow-statement Can a company have positive cash flow and still be in financial danger? In this video, I break down a real-world cash flow statement and show you exactly how to spot red flags—even when the numbers look good. We’ll cover: ✅ What “positive cash flow” really means ✅ The difference between healthy and misleading cash flow ✅ How companies use asset sales, debt, and delays to hide deeper issues ✅ Where to look in the cash flow statement for warning signs Whether you're a student, accounting professional, or business owner, this video will give you the skills to read between the lines and avoid being fooled by surface-level numbers. ----------------------------------- Hang Out with me on social media: 📸 https://www.instagram.com/the_financial_controller/ 📱https://www.tiktok.com/@thefinancialcontroller https://www.linkedin.com/in/bill-hanna-cpa-7653a851/ DISCLAIMER: Links included in this description might be affiliate links. If you happen to purchase a product or service with the links that I provide I may receive a small commission. There is no additional charge to you! Thank you for supporting my channel so I can continue to provide you with free content each week! All views expressed on my channel are mine alone. Not intended as financial or professional advice

Categories
Resources for Accountants

Build Expert-Level Models with WallStreetMojo's Course! [Video]

🚀 Looking to master financial modeling and elevate your finance career? Whether you're an aspiring analyst, finance student, or professional aiming to sharpen your modeling abilities, this course is your gateway to building expert-level financial models!​ 🎓 Introducing WallStreetMojo’s Financial Modeling Course – Your comprehensive guide to constructing dynamic financial models, forecasting, and valuation techniques used by top investment banks and corporations.​ ✅ 13+ hours of self-paced, expert-led video tutorials ✅ One-year unlimited access – Learn at your convenience! ✅ Hands-on Excel-based learning with real-world case studies ✅ Master 3-statement modeling, revenue forecasting, and scenario analysis ✅ Exclusive McDonald's case study for practical application ✅ Earn a globally recognized certification upon course completion ✅ Rated 4.8⭐ by thousands of satisfied learners!​ 🔹 What You'll Learn: 📌 Build comprehensive financial models from scratch 📌 Understand financial statements and accounting principles 📌 Gain proficiency in Excel for finance and modeling 📌 Apply real-world scenarios to reinforce learning​ 📜 Upon completion, you'll receive a professional certificate to enhance your resume and open doors to opportunities in investment banking, equity research, corporate finance, and more.​ 💡 Join over 100,000 learners who have transformed their careers with WallStreetMojo. It's your turn to gain a competitive edge in the finance industry!​ 🎯 Start your journey to mastering financial modeling today – Click below to enroll now! 👇​ 🔗 https://www.wallstreetmojo.com/financial-modeling/financial-modeling-course/ 📢 Subscribe for more practical finance training and career tips! 🔔 Turn on notifications to stay updated on the latest in finance education!

Categories
Resources for Accountants

Finance for Non-Finance Master Business Finance Without Prior Knowledge! [Video]

🚀 Looking to master business finance without any prior background? Whether you're a manager, entrepreneur, or professional aiming to make informed financial decisions, this course is your gateway to understanding finance with real-world applications!​ 🎓 Introducing WallStreetMojo’s Finance for Non-Finance Certification Course Bundle – Your comprehensive guide to grasping financial concepts, statements, and market dynamics in an easy-to-follow manner.​ ✅ 11+ hours of self-paced, expert-led video tutorials ✅ One-year unlimited access – Learn at your convenience! ✅ Hands-on Excel-based learning with practical case studies ✅ Master financial statements, valuation, and market dynamics ✅ Earn a globally recognized certification upon course completion ✅ Rated 4.8⭐ by thousands of satisfied learners!​ 🔹 What You'll Learn: 📌 Understand business finance in simple terms 📌 Analyze financial statements and ratios 📌 Grasp equity valuation and market dynamics 📌 Apply real-world scenarios to reinforce learning 📌 Gain proficiency in Excel for financial analysis​ 📜 Upon completion, you'll receive a professional certificate to enhance your resume and open doors to opportunities in management, entrepreneurship, and more.​ 💡 Join over 100,000 learners who have transformed their understanding of finance with WallStreetMojo. It's your turn to gain a competitive edge in the business world!​ 🎯 Start your journey to mastering business finance today – Click below to enroll now! 👇​ 🔗 https://www.wallstreetmojo.com/finance-for-non-finance/finance-for-non-finance-certification-course-bundle/ 📢 Subscribe for more practical finance training and career tips! 🔔 Turn on notifications to stay updated on the latest in finance education!