Write-down definition

What is a Write-Down?

A write-down occurs when a business reduces the carrying amount of an asset, other than through normal depreciation and amortization. A write-down is normally done when the market value of an asset declines below its current carrying amount. The entire amount of the write-down charge appears on the income statement, while the reduced carrying amount of the asset appears on the balance sheet. A write-down is a non-cash expense, since there is no associated outflow of cash when a write-down is taken.

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When to Take a Write-Down

A write-down should be taken as soon as management is aware that the market value of an asset has fallen; they are not supposed to delay this recognition, as often happens when a company wants to manage its earnings.

The Difference Between a Write-Down and a Write-Off

In a write-down, the carrying amount of an asset is reduced in a firm’s accounting records to some lesser amount. In a write-off, the entire remaining balance of the asset is reduced to zero.