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.

  1. Inventory Management

    Inventory management is the overseeing and controlling of the ...
  2. Average Age Of Inventory

    The average number of days it takes for a firm to sell to consumers ...
  3. Inventory

    The raw materials, work-in-process goods and completely finished ...
  4. Ending Inventory

    The value of goods available for sale at the end of the accounting ...
  5. Inventory Turnover

    Inventory Turnover is a ratio showing how many times a company's ...
  6. Write-Off

    A reduction in the value of an asset or earnings by the amount ...
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  1. How can a company control its holding costs?

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

    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Full Answer >>
  4. Can working capital be depreciated?

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  5. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
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