A write off recognises that an asset, often a loan or receivable, will not deliver the value still shown on the books. The company records an expense or reduces equity as rules require, and the asset balance falls. Writing off is an accounting and credit event, not magic cancellation of every legal claim in all cases.
Key takeaways
- Banks write off loans that look unrecoverable, which hits reported profits and capital measures.
- A write off can lag the real economic loss if problems were recognised late.
- Recovery later, if any, may be recorded as income after a prior write off.
- Large write offs are a signal to reassess asset quality, not only a paperwork detail.