Definition
A write-off is the accounting action of reducing the carrying value of an asset to zero or to its recoverable amount, recognising the loss as an expense on the income statement in the period the write-off is identified. The most common write-offs are bad debts (uncollectible receivables), obsolete or damaged inventory, and impaired fixed assets. A write-down is the closely-related action of reducing the carrying value to a non-zero recoverable amount.
What a write-off means in practice
For a bookkeeper, write-offs are the year-end clean-up adjustments that turn unrealistic asset balances into realistic ones. A 12,000 receivable from a customer that has gone into liquidation is not collectible; it should not sit at 12,000 on the balance sheet. Writing it off removes the receivable, recognises bad-debt expense of 12,000 on the income statement, and (in most jurisdictions) triggers a VAT or GST adjustment to recover the output tax already paid on the original invoice.
The mechanic is straightforward. For a bad-debt write-off: debit bad debt expense (or allowance for doubtful debts if a provision was already raised), credit accounts receivable. For an inventory write-off: debit inventory write-off expense (often included in cost of sales), credit inventory. For a fixed asset write-off: debit asset disposal/loss on disposal, credit accumulated depreciation and the gross asset. Each write-off requires supporting documentation (insolvency notice, damaged-stock list, asset disposal record).
A practical example: a UK consultancy at year-end identifies a 5,000 receivable that has been outstanding 12 months from a customer that has entered administration. The bookkeeper writes off the debt: debit bad-debt expense 5,000, credit accounts receivable 5,000. The 5,000 reduces net profit for the year. Separately, the bookkeeper claims VAT bad-debt relief on the next VAT return: the 1,000 of output VAT already paid on the original invoice is recovered from HMRC, reducing the quarter’s net VAT liability.
How write-offs work by country
United Kingdom
Bad-debt write-off is tax-deductible under CTA 2009 section 55 if the debt is reasonably regarded as bad. VAT bad-debt relief is available once the receivable is 6 months past due and has been written off in the books; the relief is claimed in box 4 of the VAT return for the period of write-off. Inventory write-down to net realisable value is deductible per FRS 102 Section 13 and follows the accounting treatment.
Australia
Bad-debt write-off is deductible under section 25-35 of the ITAA 1997 if the debt is written off as bad in the year of the deduction claim. GST adjustment is available when the debt is more than 12 months overdue or has been formally written off in the books. Section 8-1 covers inventory write-downs (deductible to the extent of the reduction to net realisable value, provided documentation supports the impairment).
Canada
Bad-debt write-off is deductible under section 20(1)(p) of the Income Tax Act if the debt was previously included in income and is now bad. GST/HST adjustment via Form GST488, available when the receivable is written off as uncollectible. Inventory write-down to fair market value is deductible under section 10 of the Income Tax Act.
New Zealand
Bad-debt write-off is deductible under section DB 31 of the Income Tax Act 2007 if the debt was previously included in income and is genuinely bad. GST adjustment is available when the supply was made more than 6 months earlier and the debt is written off as bad.
Singapore
Bad-debt write-off is deductible under section 14 of the Income Tax Act if the debt was previously brought to account as income. GST bad-debt relief is available when the debt is at least 12 months overdue and the customer is in liquidation or insolvency proceedings; IRAS requires detailed supporting documentation including the insolvency notice.
Related terms
Write-offs apply to several asset categories:
- Accounts receivable is the most common write-off target (bad debts).
- Inventory is the next-most-common (obsolete or damaged stock).
- Depreciation is the gradual write-down equivalent for tangible fixed assets.
- Amortization is the gradual write-down equivalent for intangibles.
- A write-off is posted via a journal entry.
- The write-off reduces net profit in the period it is recognised.
See also
For the related AR ageing and bad-debt management discipline, see the accounts receivable entry. For inventory write-downs, see inventory.
FAQ
See the answered questions above for when to write off bad debts, write-off vs write-down, and the VAT/GST adjustment impact.