Write-Off
The complete removal of an asset from the balance sheet when it is determined to have no remaining recoverable value.
What is Write-Off?
A write-off is the full elimination of an asset's carrying value from the balance sheet when the asset is determined to have zero remaining recoverable value. The write-off is recorded as an expense or loss on the income statement, reducing both total assets and net income. Common write-off scenarios include uncollectible accounts receivable (bad debt write-off), worthless inventory, abandoned capital projects, and equity investments in bankrupt companies. Write-offs differ from write-downs, which only partially reduce an asset's value. For tax purposes, certain write-offs may also reduce taxable income, creating a tax shield that partially offsets the accounting loss.
Example
A bank determines that a $5 million commercial loan is uncollectible after the borrower files for bankruptcy and no assets remain for recovery. The bank writes off the loan by debiting the allowance for loan losses (a contra asset) by $5 million and crediting the loan receivable by $5 million — removing the loan from the balance sheet without recording any additional income statement expense at the time of write-off, since the expected loss was already recognized when the allowance was established. If any recovery occurs later, it is recognized as income.
Source: Investopedia — Write-Off