Table of Contents
What is Write off?
In simple, Write off is a process of reducing non-recoverable balance lying on the Asset Side of the Balance Sheet. The write-off in Accounting will happen by Debiting the Expense & Crediting underlying Assets, of which value is getting reduced.
Write off Debt
In Business / Profession, several transactions took place in regard to Purchase & Sales. Usually, the Sale of Goods or Supply of Service is on credit. All the Credit Sales are recorded as Receivable on the Asset side of the Balance Sheet.
In the normal course of business, some or part of the recoverables are turned into a non-recoverable transactions. These are called Bad Debts. Presenting the Balance Sheet along with Bad debts amounts to an overstatement of Assets. Therefore the need arises to reduce that balance by writing off the same.
Writing off Excess Payments
Sometimes the excess payments happen due to oversite or by mistake.
e.g.
- Payments without deduction of tax (TDS / With Holding Tax) & realised later. To avoid the tax complication, the entity record the tax & this will be recoverable from Vendor. If it is not recoverable after a certain period of time, it needs to be written off in books.
- At the time of making Full and Final Settlements of an Employee at the time of relieving from an organization, some extra payment may happen, and if it is non-recoverable, it needs to written off in books.
Journal Entry of Write off in Accounting
The amounts lying on the Asset side of the Balance Sheet are required to reduce in this process. Since these are having Debit balances, it needs to Credit for reduction (BS) and Expenses (P&L) get Debited.
The entry will be as below:
Expenses (By whatever name) Dr.
To Respective GL (of which the balance needs to be reduced)
Writing off Fraction amounts in Trial Balance
Sometimes the balances in Trial balance are showing a fraction of Debit amounts, which must be written off to make a clean Trial Balance. e.g. 0.21 cents, 0.35 cents, etc. balances are required to make to 0.00 by writing off the Same.
Tax treatment on Write Off
These are allowable expenses while calculating the Tax Computation.
