Write-Off is an accounting action where an asset or amount is completely removed from the books because it is considered unrecoverable or has no remaining value.
A write-off is used when a company determines that an asset, receivable, or expense cannot be recovered or has become worthless. Once written off, the value is permanently removed from the balance sheet and recorded as an expense or loss in the profit and loss account.
Write-offs are common in cases of bad debts, obsolete inventory, damaged assets, or irrecoverable loans. In banking, loan write-offs occur when recovery is unlikely, although recovery efforts may still continue separately.
It is important to note that a write-off does not mean forgiveness of debt in all cases. Especially in banking, a written-off loan may still be legally recoverable. Write-offs help present a true and fair view of financial statements by avoiding overstated assets.
"A company sells goods worth ₹1,00,000 on credit. After repeated follow-ups, the customer fails to pay and is declared insolvent. The company records the ₹1,00,000 as a bad debt write-off."