What is a Write Down?
In accounting, the assets of a business are shown at book value, a write down is needed when the asset is impaired, and the market value is lower than the current book value.
Any asset can be subject to a write down including, inventory, property, plant and machinery, and accounts receivables. For example a loan company or a bank might have a debt or a mortgage which is not fully recoverable, in these circumstances a debt write down or mortgage write down will be used to reduce the value to the amount recoverable.
The asset write down is a cost to the business and is recorded on the income statement as an expense under the appropriate heading.
For example, suppose a business has a book value of inventory of 10,000 and needs to write this down to 8,000, due to an impairment in its value. The accounting journal to post this inventory write down of 2,000 to the accounting records would be as follows.
|Inventory write down||2,000|
The cost of the writedown is charged to the income come statement using the inventory write down account. If the writedown is immaterial, then the expense could be charged to the cost of goods sold account and not shown separately.
A write down is similar to a write off, except that with a write down, the asset is still left with a book value whereas with a write off the value of the asset is reduced to zero.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.