What is a Write Off?
In accounting, the assets of a business are shown at book value, a write off is needed when the asset is impaired and has zero value.
Any asset can be subject to a write off including, property, inventory, property, equipment, motor vehicles, 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 off or mortgage write off will be used to clear the debt from the records.
The asset write off 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 an accounts receivable of 5,000 and needs to write this debt off due to an impairment in its value. The bad debt write off journal entry to post this to the accounting records would be as follows.
|Bad debt write off account||5,000|
The cost of the writeoff is charged to the income come statement using the bad debt write off account.
A write off is similar to a write down, 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.
Learn a new Bookkeeping Term
Random bookkeeping terms for you to discover.