What Is a Write-off?
A write-off is an accounting action that reduces the recorded value of an asset to zero (or lower) because it's no longer collectible or has lost its value. It removes an unrecoverable amount — like an uncollectible receivable or obsolete inventory — from the books and records the loss as an expense.
What a write-off is and why it matters
A write-off keeps the balance sheet honest by removing value that no longer exists. The most common case is an uncollectible receivable: once a customer clearly won't pay, keeping that amount in accounts receivable overstates assets, so it's written off. The same applies to obsolete or damaged inventory and impaired assets. A write-off reduces the asset and records a corresponding expense or loss, lowering net income in that period. It's different from a write-down, which reduces an asset's value only partially rather than to zero. Because write-offs affect both reported assets and profit — and sometimes taxes — they require documentation and judgment.
A worked example
A company has a $4,000 invoice from a customer who has gone out of business and won't pay. Using the direct write-off method, it removes the receivable and records the loss: debit *Bad Debt Expense* $4,000, credit *Accounts Receivable* $4,000. Accounts receivable drops by $4,000, and net income falls by $4,000 in the period. (Under the allowance method, the write-off would instead reduce the previously established allowance for doubtful accounts.)
How firms handle it today
Firms identify write-off candidates from aging reports and asset reviews, document why the amount is unrecoverable, and post the write-off at close — a judgment call that needs support for the audit trail and tax.
Related terms
- Bad debt
- Accounts receivable
- Expense
- Inventory
- Audit trail
FAQ
What's the difference between a write-off and a write-down?
A write-off removes an asset's value entirely (to zero); a write-down reduces it partially to a lower value.
What can be written off?
Uncollectible receivables (bad debt), obsolete or damaged inventory, and impaired or worthless assets.
Does a write-off affect profit?
Yes — it records an expense or loss, reducing net income in the period it's taken.