Types of Accounts Typically Written Off

A write-off is an accounting action that reduces the value of an asset while simultaneously debiting an expense account. It is primarily used in its most literal sense by businesses seeking to account for unpaid loan obligations, unpaid receivables, or losses on stored inventory. Generally, it can also be referred to broadly as something that helps to lower an annual tax bill.

Commonly Written-Off Accounts

The following types of accounts are commonly written off:

  • Unpaid bank loans: Financial institutions use write-off accounts when they have exhausted all methods of collection action. Write-offs may be tracked closely with an institution’s loan loss reserves, which is another type of non-cash account that manages expectations for losses on unpaid debts. Loan loss reserves work as a projection for unpaid debts, while write-offs are a final action.

  • Unpaid receivables: A business may need to take a write-off after determining a customer is not going to pay their bill. Generally, on the balance sheet, this will involve a debit to an unpaid receivables account as a liability and a credit to accounts receivable.

  • Inventory: There can be several reasons why a company may need to write off some of its inventory. Inventory can be lost, stolen, spoiled, or obsolete. On the balance sheet, writing off inventory generally involves an expense debit for the value of unusable inventory and a credit to inventory. 

Additional Considerations

  • Tax write-offs: The term write-off may also be used loosely to explain something that reduces taxable income. As such, deductions, credits, and expenses overall may be referred to as write-offs.

  • Write-downs: Do not confuse a write-off with a write-down. In a write-down, an asset’s value may be impaired, but it is not totally eliminated from one’s accounting books.

Understanding write-offs—and the difference between a tax write-off and a write-down can help you reduce taxable income and increase the accuracy of how you record a business’ financial situation. Learn about the write-offs that apply to your situation and don’t miss the chance to take advantage of them when they apply.

FA25 – How do you Write Off a Receivable?


What type of account is write-off?

A write-off is an elimination of an uncollectible accounts receivable recorded on the general ledger.

What kind of expense is write-off?

A tax write-off is a business expense that can be claimed as a tax deduction on a federal income tax return, lowering the amount the business will be assessed for taxes. Tax write-offs are deducted from total revenue to determine total taxable income for a small business.

What type of account is bad debt expense?

Bad debt expense or BDE is an accounting entry that lists the dollar amount of receivables your company does not expect to collect. It reduces the receivables on your balance sheet. Accountants record bad debt as an expense under Sales, General, and Administrative expenses (SG&A) on the income statement.

When assets are written off?

Writing an asset off in business is the same as claiming that it no longer serves a purpose and has no future value. The business is effectively declaring that the value of the asset is now zero. Once an asset has been written off in this manner, this valuation is permanent.

What is accounts written off?

Accounts written off refers to accounts receivables that a company has presumed uncollectible and also removed from the general ledger. It helps companies to reduce their accounts receivables statement to only those customers from which it can collect its due amount.

What is a write-off in accounting?

A write-off primarily refers to a business accounting expense reported to account for unreceived payments or losses on assets. Three common scenarios requiring a business write-off include unpaid bank loans, unpaid receivables, and losses on stored inventory. A write-off is a business expense that reduces taxable income on the income statement.

How does a business write-off assets?

The business can write-off assets by transferring some or all the recorded amount to an expense account. Write-off is usually performed at once and does not span multiple accounting periods. This is because write-off is a one-time event and needs to be addressed immediately.

Can a company write off an account?

The write-off of an account by a firm can follow two methods – the allowance method or the direct write-off method. Hence, it’s important to note that writing off an account does not erase the debt legally or financially; it merely reflects the acknowledgment that the company believes it is unlikely to recover the amount.

Leave a Comment