what is a write off 
a write off is an accounting action that reduces the value of an asset while simultaneously debiting an expense account it is primarily used in its most literal sense by businesses seeking to account for unpaid loan obligations unpaid receivables or losses on stored inventory generally it can also be referred to broadly as something that helps to lower an annual tax bill investopedia joules garciaunderstanding write offsbusinesses regularly use accounting write offs to account for losses on assets related to various circumstances as such on the balance sheet write offs usually involve a debit to an expense account and a credit to the associated asset account each write off scenario will differ but usually expenses will also be reported on the income statement deducting from any revenues already reported generally accepted accounting principles gaap detail the accounting entries required for a write off the two most common business accounting methods for write offs include the direct write off method and the allowance method the entries will usually vary depending on each individual scenario financial institutions use write off accounts 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 a business may need to take a write off after determining a customer is not going to pay their bill generally on the balance sheet this will involve a debit to an unpaid receivables account as a liability and a credit to accounts receivable 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 unusable inventory and a credit to inventory tax write offsthe term write off may also be used loosely to explain something that reduces taxable income as such deductions credits and expenses overall may be referred to as write offs businesses and individuals have the opportunity to claim certain deductions that reduce their taxable income the internal revenue service allows individuals to claim a standard deduction on their income tax returns individuals can also itemize deductions if they exceed the standard deduction level deductions reduce the adjusted gross income applied to a corresponding tax rate 1tax credits may also be referred to as a type of write off tax credits are applied to taxes owed lowering the overall tax bill directly 2corporations and small businesses have a broad range of expenses that comprehensively reduce the profits required to be taxed an expense write off will usually increase expenses on an income statement which leads to a lower profit and lower taxable income 