Write-Off

Definition

A write-off is an accounting move where a business records that an asset has lost all its value, so it’s effectively removed from the books. This usually happens when something like old equipment or uncollected debt is no longer worth anything or isn’t recoverable. For example, if a customer can’t pay what they owe, that debt might get “written off” as a loss, meaning the business doesn’t 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. It’s a way to clear out assets that don’t add value, like uncollected debts or damaged inventory. This is crucial because, without write-offs, the company’s balance sheet might show inflated values, making the business appear more financially stable than it actually is​.

Beyond accuracy, write-offs impact taxes. When a business removes an asset’s value from its books, it reduces taxable income, meaning it might lower the company’s tax bill. This tax benefit makes write-offs helpful not only for cleanup but for managing costs effectively.