Write-Off

Definition:

Write off is a accounting entry that reduces the accounts receivable or accounts payable balance to zero, typically when the account is considered uncollectible or unpayable.

Reasons for Writing Off Accounts:

• Accounts that are considered uncollectible or unpayable
• Accounts where the customer or supplier has declared bankruptcy
• Accounts where the customer or supplier has defaulted on payment

Procedure for Writing Off Accounts:

1. Identify accounts that meet the criteria for write-off.
2. Create a journal entry to write off the accounts, debiting the bad debt expense account and crediting the accounts receivable or accounts payable account.
3. Record the write-off amount in the appropriate account.
4. Update the accounts receivable or accounts payable balance to zero.

Example:

“`Account Write-Off Journal Entry:

Debit: Bad Debt Expense Account (account number) $10,000Credit: Accounts Payable Account (account number) $10,000

Accounts Payable Balance: $0“`

Financial Impact:

• Write-offs reduce the accounts receivable or accounts payable balance, which can impact the company’s financial statements.
• Write-offs increase the bad debt expense account, which can impact the company’s overall profitability.

Best Practices:

• Write off accounts accurately and timely.
• Maintain proper documentation for write-offs.
• Review write-off policies and procedures regularly to ensure compliance.
• Consider using accounts receivable or accounts payable aging reports to identify accounts that are overdue and may require write-off.