.png)
Learn what write-offs are and their importance.
What is a tax write-off?
A write-off is an accounting action that reduces the value of an asset. It is primarily used in its most literal sense by businesses seeking to account for unpaid loan obligations or losses on stored inventory. Generally, it can also be referred to broadly as something that helps to lower an annual tax bill.
Who can use write-offs?
Banks: Banks use write-offs 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.
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 inventory unusable and a credit to inventory.
Individuals and self-employed: Individuals can use write-offs to deduct things such as business use of their car, moving costs, uniforms, office supplies, and cost of goods sold.
Quiz:
https://quizlet.com/346507717/
Comments