Wealth Dictionary
Write off
A write-off refers to the accounting practice of removing an asset or liability from the balance sheet by recognizing it as a loss or expense, typically due to its impaired value, obsolescence, or irrecoverable nature. Write-offs are common in business and financial reporting when assets become worthless, uncollectible, or no longer economically viable, necessitating their removal from the company's financial records to reflect their true value accurately. Write-offs may occur for various reasons, including bad debts, inventory obsolescence, asset impairments, intangible asset write-downs, or restructuring charges, and are recorded as non-cash charges on the income statement, reducing the company's reported profits and shareholders' equity.
Write-offs allow companies to write down the value of impaired assets, clean up their balance sheets, and maintain transparency and accuracy in financial reporting, preventing overvaluation or misleading stakeholders about the true financial condition of the business. Write-offs may be disclosed in financial statements, footnotes, or management discussions and analysis (MD&A) to provide insights into the company's financial performance, operating efficiency, and risk management practices, informing investors, creditors, and other stakeholders about the impact of write-offs on earnings, cash flow, and future prospects.