Write-offs

Write-offs refer to the removal of an asset, often a debt or investment, from a company's balance sheet because it's deemed uncollectible or worthless. This accounting practice reduces the company's reported assets and income for tax purposes. Businesses use write-offs to reflect the true value of their holdings, minimizing potential financial misrepresentations. The process typically involves determining the extent of the loss and the recording of the asset as a deduction from income.

Write-offs meaning with examples

• After a severe economic downturn, the bank had to take significant write-offs on loans that customers were unable to repay. The bank's profits suffered, but it also provided a more realistic view of its financial health, allowing it to improve their future lending practices.
• The company made significant write-offs for obsolete inventory, meaning they had goods sitting on shelves that were past their sell-by date and could not be sold, therefore losing their value. They improved their inventory management practices to prevent this problem in the future.
• Due to a massive cyber attack, the insurance company had to take substantial write-offs because of bad debts and claims that were no longer possible to collect. These measures reduced the reported assets and impacted the company's bottom line.
• A struggling startup decided to take write-offs of various investments that had failed or were declining in value. The adjustments helped them clean up their balance sheet and avoid misleading future investors, as well as improve the efficiency of future projects