What is expected credit loss in SAP FI-GL-GL - Basic Functions?

SAP Term: expected credit loss

• Component: FI-GL-GL

• Component Name: Basic Functions

• Description: Expected credit loss is the probability-weighted estimate of credit losses over the expected life of a financial instrument.

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• Key Concepts: 
  Expected credit loss is a term used in SAP Financial Accounting (FI-GL-GL Basic Functions) to refer to the amount of money that a company anticipates losing due to a customer’s inability to pay their debt. This amount is calculated based on the customer’s creditworthiness and the company’s past experience with similar customers. 
  
  How to use it: 
  Expected credit loss is used to determine the amount of money that a company should set aside in order to cover potential losses from customers who may not be able to pay their debts. This amount is then used to adjust the company’s accounts receivable balance, which is reported on the balance sheet. 
  
  Tips & Tricks: 
  When calculating expected credit loss, it is important to consider factors such as the customer’s creditworthiness, the company’s past experience with similar customers, and any external factors that may affect the customer’s ability to pay their debt. 
  
  Related Information: 
  Expected credit loss is closely related to other terms such as bad debt expense and allowance for doubtful accounts. Bad debt expense is an accounting term used to refer to the amount of money that a company has written off due to a customer’s inability to pay their debt. The allowance for doubtful accounts is an estimate of the amount of money that a company anticipates losing due to customers who may not be able to pay their debts.