Write-Off

Beginner

A write-off is the removal of an asset's value from the accounts, wholly or partly, because it no longer has the value previously recorded, such as a debt that will never be paid or stock that cannot be sold.

Assets are recorded at a value, but sometimes that value disappears. A customer goes bankrupt and will never pay, inventory is damaged or becomes obsolete, or an investment becomes worthless. Writing the asset off brings the accounts back in line with reality.

The written-off amount is usually recorded as an expense or charged against an existing allowance. For example, if a customer who owes 4,000 goes out of business, the company removes the 4,000 from accounts receivable. If it had already set up an allowance for doubtful accounts, the write-off is charged against that allowance rather than creating a new expense.

A partial reduction in value is often called a write-down rather than a write-off. Stock that can now only be sold at a discount, for example, may be written down to its lower expected selling price.

Large write-offs can sharply reduce a company's profit in the period they occur. Investors watch for them because they can reveal earlier overoptimism about asset values.

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