Inventory Write-Off

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Inventory Management

    The overseeing and controlling of the ordering, storage and use ...
  2. Average Age Of Inventory

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

    The value of goods available for sale at the end of the accounting ...
  4. Write-Off

    A reduction in the value of an asset or earnings by the amount ...
  5. Inventory

    The raw materials, work-in-process goods and completely finished ...
  6. Inventory Turnover

    A ratio showing how many times a company's inventory is sold ...
Related Articles
  1. Investing

    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 GAAP to inventory reserves often use a significant amount of personal ...
  2. Entrepreneurship

    Insurance Coverage: A Business Necessity

    Don't go to work without this policy in place - especially if your work is in your home.
  3. It is, therefore, crucial for investors who are analyzing stocks to understand how inventory is valued.
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  4. Entrepreneurship

    In Small Business, Success Is Spelled With 5 "C"s

    Incorporating these steps will help your business thrive in a competitive market.
  5. Fundamental Analysis

    Analyzing Retail Stocks

    To analyze retail stocks, investors need to be aware of the most common metrics used. Find out what they are.
  6. Fundamental Analysis

    What is the difference between a capital gearing ratio and a net gearing ratio?

    Understand the definition of gearing in the finance industry, the difference between net gearing and capital gearing ratios and how they are interpreted.
  7. Investing Basics

    What is the difference between the gearing ratio and the debt-to-equity ratio?

    Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular analytical gearing tools.
  8. Fundamental Analysis

    What is the difference between interest coverage ratio and DSCR?

    Understand the basics of the interest coverage ratio and the debt-service coverage ratio, including calculations and how each type reflects financial stability.
  9. Investing Basics

    What is the difference between interest coverage ratio and TIE?

    Read about the times interest earned, also known as the interest coverage ratio. Find out why this is an important ratio for investors and creditors.
  10. Investing Basics

    What is accrual accounting used for in finance?

    Read about the accrual method of accounting, its uses and rules, and why it is considered so important for investors, lenders and managers.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center