Write Downs
What is a Write Down?
A write down is when you reduce the value of an asset from its book value to a lower fair value.
![wd1](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd1.jpg)
How it Works
A business will have assets such as inventory, goodwill, accounts receivable, and plant and machinery.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd2.jpg)
These assets can lose value for various reasons.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd3.jpg)
For example, some unsold shelf stock may need to be discounted.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd4.jpg)
If this happens, you need to modify the inventory’s value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd5.jpg)
To do this, you take the inventory’s carrying value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd6.jpg)
And reduce it to the lower fair value, which is the price at which you can currently sell it.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd7.jpg)
If the loss of value is insignificant, you allocate the expense to cost of goods sold.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd8.jpg)
This shows the loss is just another cost of making sales.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd9.jpg)
To write down the loss, you credit the inventory account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd10.jpg)
This shows you have taken value from that account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd11.jpg)
Then you debit the cost of goods sold account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd12.jpg)
This shows you have allocated the expense as a cost of goods sold.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd13.jpg)
Sometimes assets will lose a lot of value suddenly.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd14.jpg)
For example, an inventory of cars may be suddenly damaged in a hail storm.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd15.jpg)
If the loss of value is significant, you allocate it to the inventory write down expense account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd16.jpg)
Again, you credit the inventory account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd17.jpg)
This shows you have taken value from inventory.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd18.jpg)
After that, you debit the inventory write down expense account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd19.jpg)
This shows you have allocated the loss of value to inventory write down.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wd20.jpg)
© R.J. Hickman 2020