Written Off / To Write-Off Definition

When a business incurs an uncollectible debt, it’s important for accounting purposes to write off the debt. This ensures that the business’s books are accurate and up-to-date. The term ‘write-off’ is an accounting term that refers to the act of reducing the value of an asset. When a business writes off a debt, it’s acknowledging that the debt is no longer collectible and reducing the value of the asset accordingly.

There are two main methods for writing off debts:

The first method is to write off the debt as soon as it becomes clear that it won’t be collected. This is known as the ‘accrual method’ of writing off debts. Under this method, businesses keep track of their uncollectible debts and write them off on a regular basis, typically at the end of each accounting period.

The second method is to wait until the end of the year to write off all of your uncollectible debts at once. This is known as the ‘end-of-year write-off’ method. Under this method, businesses don’t track their uncollectible debts on a regular basis. Instead, they wait until the end of the year and then write all of their uncollectible debts off at once.

Which method you use depends on your preference and your accountant’s advice. If you use accrual accounting for your business, then you’ll probably want to use the accrual method.