This month, Maddaux answers a common credit union question regarding allowances. Our Head of Accounting Assistance and Aux CFO Diane Parham sits down with Maddaux to bring clarity to this confusing topic.
May 2021: Ask Maddaux
Q: Our Allowance is overfunded. Can we write it down and take those funds into income?
A: Yes, you can, but there are a few things to consider. Before taking any action, review your calculation. Have you accounted for environmental and qualitative factors? For example, if you’ve recently started offering credit cards, does your calculation include enough funds for future losses. Also, if it is not common practice for your credit union, you will want to show consistent months of over-funding before considering a write down. It is a tough decision that should be discussed and analyzed prior to recording the entry.
Have additional accounting questions? We are here for you! Drop us a line at hello@auxteam.com
