Inventory Write-Off


DEFINITION of 'Inventory Write-Off'

An accounting term for the formal recognition that a portion of a company's inventory no longer has value. An inventory write-off may be handled in the company's books by charging it to the cost of goods sold or by offsetting the obsolete inventory allowance. Most inventory write-offs are small, annual expenses; a large inventory write-off (such as one caused by a warehouse fire) may be categorized as a non-recurring loss. If inventory still has some value, it will be written down instead of written off. Other items that companies commonly write off include uncollectable accounts receivable and obsolete fixed assets.

BREAKING DOWN 'Inventory Write-Off'

Large, recurring inventory write-offs can indicate that a company has poor inventory management. The company may be purchasing excessive or duplicative inventory because it has lost track of certain items or its using existing inventory inefficiently. Companies that don't want to admit to such problems may resort to dishonest techniques to reduce the apparent size of the obsolete or unusable inventory. These tactics may constitute inventory fraud.

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  3. What are the generally accepted accounting principles for inventory reserves?

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