Write Down

Key Highlights

• A write-down happens when a company realizes that something it owns - like equipment or inventory - is no longer worth as much as it used to be, so it updates its books to reflect the lower value.

• Think of it like marking down the price of an old phone model when a new one comes out - it’s still valuable, just not as much.

What is Write-Down?

A write-down happens when a company realizes that something it owns - like equipment or inventory - is no longer worth as much as it used to be, so it updates its books to reflect the lower value. Think of it like marking down the price of an old phone model when a new one comes out - it’s still valuable, just not as much.

When Does it Happen?

• Inventory gets outdated or damaged.

• Customers can’t pay their bills.

• Equipment or property loses value due to wear or market changes.

• A business acquisition doesn’t perform as expected.

How Does it Work?

• The loss in value is recorded as an expense, which lowers profits on the income statement.

• No cash leaves the company - it’s just an accounting adjustment.

Example

Imagine a store with old gadgets no one wants anymore. They lower the recorded value of those gadgets to match what they’re worth now, and the loss shows up in their financial reports.