What is a write-off?
A write-off recognises that something recorded as an asset will not bring any future benefit. A write-down is a partial reduction; a write-off removes the full amount.
Common write-offs
- [Bad debts](/glossary/bad-debt): customer invoices that won't be paid.
- Inventory: stolen, damaged, expired or [obsolete](/glossary/accounting-for-inventory-obsolescence) stock.
- Fixed assets: equipment that's destroyed or scrapped before it's fully depreciated.
- Intangibles and projects: abandoned software or development costs (see [impairment](/glossary/impairment)).
Journal entries
- Bad debt (allowance method): debit [allowance for doubtful accounts](/glossary/allowance-for-doubtful-accounts), credit accounts receivable.
- Inventory: debit inventory write-off expense (or COGS), credit inventory.
- Fixed asset: debit accumulated depreciation and loss on disposal, credit the asset at cost.
Example
Flood damage destroys $8,000 of stock. The business records an $8,000 inventory write-off expense. If insurance pays $6,000, it records the $6,000 as other income or a receivable.
Tax write-offs
In everyday language, a "tax write-off" means a [tax deduction](/glossary/tax-deduction). Many accounting write-offs are deductible, but rules vary, so keep evidence such as stock disposal records and debt collection attempts.