A write-off happens when a company decides that a certain asset or amount owed to them is no longer collectible or usable, and removes it from their financial records. It is essentially the company saying, "We are not getting this money back."
For example, if a customer owes your company $5,000 but has gone bankrupt and cannot pay, you write off that amount as a loss. This reduces your total assets and also lowers your taxable income — which is why write-offs are also used as a legitimate tax strategy.
Common write-offs include bad debts, obsolete inventory, and damaged equipment. It is important to note that a write-off does not mean the money disappears — it simply means the company no longer counts it as an asset on its books.