Write-off

Write-off

[rahyt-awf, -of]
The term write-off (or write-down) describes a reduction in recognized value. In accounting terminology, it refers to recognition of the reduced or zero value of an asset. In income tax statements, it refers to a reduction of taxable income as recognition of certain expenses required to produce the income. Write-off is also used in vehicle insurance to describe a vehicle which is cheaper to replace than to repair, sometimes known as being a totaled car (a total write-off).

Income tax

In income tax calculation, a write-off is the itemized deduction of an item's value from one's taxable income. Thus, if a person has a taxable income of $50,000 per year, a $100 telephone for business use would lower the taxable income to $49,900. If that person is in a 25% tax bracket, the tax due would be lowered from $7,481 to $7,456. Thus the net cost of the telephone is $75 instead of $100.

Accounting

In business accounting, the term write-off is used to refer to an investment (such as a purchase of salable goods) for which a return on the investment is now impossible or unlikely. The item's potential return is thus canceled and removed from ("written off") the business's balance sheet. Common write-offs in retail include spoiled and damaged goods.

Banking

Similarly, banks write off bad debt that is declared noncollectable (such as a loan on a defunct business or a credit card due that is now in default), removing it from their balance sheets.

Negative Write-offs

A negative write-off refers to the decision not to pay back an individual or organization that has overpaid on an account. Negative write-offs can sometimes be seen as fraudulant activity if those who overpay a claim or bill are not informed that they have overpaid and are not given any chance to reconcile their overpayment or be refunded.

Some institutions such as banks, hospitals, universities, and other large organizations regularly perform negative write-offs, especially when the amount that is considered low dollar, i.e. $5.00 at some places or up to $15.00 or more at others.

Write-down

A write-down is an accounting treatment that recognizes the reduced value of an impaired asset. The value of an asset may change due to fundamental changes in technology or markets. One example is when one company purchases another and pays more than the net book value of its assets and liabilities. The excess purchase price is recorded on the buying company's accounts as goodwill. If it becomes apparent that the purchased company no longer has the value recorded in the goodwill account (it can't be resold at the same price), the value in the goodwill asset account is "written down".

A write-down is sometimes considered synonymous with a write-off. The distinction is that while a write-off is generally completely removed from the balance sheet, a write-down leaves the asset with a lower value. As an example, one of the consequences of the 2007 subprime crisis at financial institutions was a revaluation under mark to market rules:

"Washington Mutual will write down by $150 million the value of $17 billion in loans...":

In Popular Culture

In the television sitcom Seinfeld Kramer and Jerry discuss the topic using a circular logic:

Jerry: "So we're going to make the post office pay for my new stereo now?"
Kramer: "It's a write-off for them."
Jerry: "How is it a write-off?"
Kramer: "They just write it off."
Jerry: "Write it off what?"
Kramer: "Jerry, all these big companies- they write off everything."
Jerry: "You don't even know what a write-off is."
Kramer: "Do you?"
Jerry: "No. I don't"
Kramer: "But they do. And they're the ones writing it off."

References

External links

See also

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