Write-Off
Definition
A write-off is an accounting move where a business records that an asset has lost all its value, so itâs effectively removed from the books. This usually happens when something like old equipment or uncollected debt is no longer worth anything or isnât recoverable. For example, if a customer canât pay what they owe, that debt might get âwritten offâ as a loss, meaning the business doesnât expect to recover it anymore and logs it as an expense instead.
Why it matters
Write-offs matter because they allow a business to keep its financial records accurate and realistic. Itâs a way to clear out assets that donât add value, like uncollected debts or damaged inventory. This is crucial because, without write-offs, the companyâs balance sheet might show inflated values, making the business appear more financially stable than it actually isâ.
Beyond accuracy, write-offs impact taxes. When a business removes an assetâs value from its books, it reduces taxable income, meaning it might lower the companyâs tax bill. This tax benefit makes write-offs helpful not only for cleanup but for managing costs effectively.
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