The 2025 Credit Loss Accounting Standard Update

Less Forecasting, More Clarity

Good news for anyone who provides services and invoices to customers — whether you’re a nonprofit with program or membership revenue or a for-profit offering consulting or project work. 

The Financial Accounting Standards Board (FASB) issued a new update on July 30, 2025 — ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets — that makes life a little easier when it comes to estimating your allowance for credit losses (aka how much of your receivables you think might not get paid). 

Here’s what this new standard means, why it matters, and how you can get ready. 

What Changed? 

Organizations are still required to follow the complex credit loss rules under the current ASC 326 Current Expected Credit Loss (CECL) standard. However, the new ASU 2025-05 introduces a simpler option — called a practical expedient — for current accounts receivable and contract assets that come from contracts with customers. 

In other words, while the overall standard hasn’t changed, this update offers a helpful shortcut for one specific area: short-term receivables typically collected within a year. 

ASU 2025-05 simplifies the process while introducing two key provisions: 

• It introduces a practical expedient for all entities to assume current conditions remain unchanged when developing forecasts for expected credit losses. 

• It allows nonpublic entities to elect a policy to consider post-balance-sheet collection activity when estimating credit losses. 

If you have current accounts receivable or contract assets from providing services (under ASC 606 – Contracts with Customers), this new rule gives you two helpful options: 

A Simpler Way to Estimate Losses 

Instead of trying to predict future economic conditions, you can assume that the current environment stays the same over the short time your invoices are outstanding. → Translation: No more overthinking or complicated “what-if” models. 

An Optional Policy for Private Companies and Nonprofits 

You can also choose to look at what’s actually been collected after year-end before issuing your financials. → Translation: If your customer or funder pays you right after year-end, you don’t have to treat that invoice as risky — you can show it as collected. 

Why It Matters 

For most service-based organizations, this update means less work and more clarity. 

Here’s why it’s worth paying attention: 

• Simpler accounting: Less time estimating and explaining credit loss assumptions. 

• Better accuracy: Reflects what’s really happening with your current accounts receivable and contract assets. 

• Reduced documentation: No need for complex forecasts or data modeling. 

• Early adoption allowed: You can start using it now instead of waiting until 2026. 

If you typically collect payments quickly or have strong relationships with customers or funders, this new option will likely make your allowance process faster and easier. 

Who This Applies To 

You’re included if you earn revenue through contracts or agreements — like: 

• Service fees or consulting work 

• Membership dues or tuition 

• Any exchange-type revenue under ASC 606 

You’re not included if your receivables come from donations, grants, event sponsorships, or pledges. Those follow different rules and are not part of this update. 

If your revenue is based on services you provide (not gifts you receive), this standard applies to you. 

When It Takes Effect 

The new standard takes effect for years beginning after December 15, 2025. 

That means it applies to: 

• Calendar-year 2026 clients 

• Fiscal-year 2027 clients 

If your fiscal year ends June 30, 2025, you may be able to apply the new rule early as long as your financial statements haven’t been issued yet. Since ASU 2025-05 was released on July 30, 2025, early adoption is permitted only for reporting periods where the financial statements were still in progress (not finalized or released) after that date. 

In other words, if your 6/30/25 audit is still underway later this summer, you can elect to adopt early and simplify your next audit cycle. But if your financials are already finalized, this change would take effect for your fiscal year ending June 30, 2026, instead. 

What You Can Do Now 

Here’s a simple action plan: 

1. Identify which receivables qualify. Separate your invoices from service contracts (ASC 606) from contributions and grants. 

2. Talk to your accountant or BryMar auditor. Ask if early adoption makes sense for you. 

3. Update your accounting policy. Decide if you’ll use the simpler estimate and/or the post-year-end collection option. 

4. Add a short disclosure. If you adopt early, your financials just need to note that change. 

Why Early Adoption Might Be Worth It 

Choosing to adopt early can save you time and effort now — not just later. 

You’ll likely: 

• Spend less time calculating allowances 

• Align your financials with your actual collections 

• Simplify your audit prep for 2025 

The Bottom Line — BryMar’s Take 

At BryMar CPA, we know accounting standards don’t usually spark excitement — but this one’s worth celebrating. 

ASU 2025-05 offers meaningful relief for both nonprofits and for-profits that provide services under contracts. It’s a practical update that simplifies how you estimate credit losses on current accounts receivable and contract assets — helping your financials better reflect the real world, where most invoices get paid promptly. 

Our audit team is already preparing clients for how this change will affect their 2025 and 2026 financial statements. We’re encouraging early adoption when it makes sense and helping clients update their disclosures so they can focus more on their mission. 

If your organization earns revenue through service contracts and you’re curious about how this update applies to you, contact our team at BryMar CPA — we’re here to walk you through it.