Partial reduction of an asset's carrying amount when the recorded amount is no longer fully supportable.
A write-down is a partial reduction in the recorded amount of an asset. It is used when the asset still has value, but not enough to support the amount currently carried in the accounts.
Write-downs keep the balance sheet from overstating asset values and force losses into the period when the decline becomes evident. They therefore affect both measurement discipline and reported profit.
Write-downs appear in several accounting settings. Inventory may be written down when cost exceeds recoverable selling value. Long-lived assets may be written down after an impairment review. In each case, the asset’s carrying amount is reduced and a loss or expense is recognized.
The reduction may be recorded directly against the asset or through a related valuation account, depending on the item and the accounting framework.
A business holds inventory costing 12,000, but it now expects to sell the goods for 10,500 and incur 500 of selling costs:
| Item | Amount |
|---|---|
| Inventory cost | 12,000 |
| Net realizable value | 10,000 |
| Required write-down | 2,000 |
The entry would usually be:
| Account | Debit | Credit |
|---|---|---|
| Loss on Inventory Write-Down | 2,000 | |
| Inventory | 2,000 |
A write-down is not the same as a write-off. A write-down leaves some carrying amount in place, while a write-off removes the recorded amount entirely or removes the identified balance being addressed. It is also different from routine depreciation, which allocates cost systematically over time.