- transfer of theentirebalance of an asset account into an expense or loss account. A full reduction in an asset indicates it is not worth anything (has no future benefit) due to some occurrence. An example is the destruction of a machine in a fire when the company has no insurance and the machine no salvage value.
- elimination of a specific customer's account balance because of uncollectibility, as in the case of a bankruptcy.
charging an asset amount to expense or loss. The effect of a write-off is to reduce or eliminate the value of the asset and reduce profits. Write-offs are systematically taken in accordance with allowable tax depreciation of a fixed asset, and with the amortization of certain other assets, such as an intangible asset and a capitalized cost (like premiums paid on investments). Write-offs are also taken when assets are, for whatever reason, deemed worthless, the most common example being uncollectible accounts receivable. Where such writeoffs can be anticipated and therefore estimated, the usual practice has been to charge income regularly in amounts needed to maintain a reserve, the actual losses then being charged to the reserve. The tax reform act of 1986 required that bad debt write-offs be charged directly to income by taxpayers other than small banks and thrift institutions.
an accounting procedure where an asset whose value has declined is reserved or taken off the books.
Example: To certify a financial statement, the CPA insisted that uncollected rents from the previous year be entirely written off, as the possibility of collection was minimal.
