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A reduction in an individual's or a company's income as the result of an expense. For example, an unpayable credit sale may be a write-off for the creditor, especially if the debtor declares bankruptcy. The bankruptcy means that the debtor is unable to pay the debt, which results in a loss of income for the creditor. A write-off may usually be deducted from one's taxable income.
To reduce the balance (that is, the book value of an asset or a group of assets) in an account to zero by recognizing the recorded value as an expense. For example, a firm may write off a technologically obsolete asset shown on its balance sheet as having monetary value. The asset will then be deleted from the balance sheet, and income during the period will be reduced (or losses will be increased) by an equivalent amount. Also called charge off.
Case Study In September 2001 Blockbuster, Inc., announced it would write off $450 million in the value of its videotape inventory. Tapes that, depending on age, had each been carried at a value of $4 to $8 would be valued at $2 under the new policy. In addition, Blockbuster said it would reduce the number of old tapes in each store from 8,000 to 6,000, thereby eliminating a quarter of its inventory of older tapes. More profitable DVD rentals had become an increasing part of Blockbuster's business, and the firm decided to devote more shelf space to these items. The charge, taken against second-half earnings, caused Blockbuster to report a large loss when Wall Street analysts had been expecting positive earnings. The unexpected news caused the firm's common stock to fall in price by over 8% on the day of the announcement.