Write-off and Write-back: Are they different?

Write off and write back are two different accounting treatments. Both of these occur in the company’s books depending upon the present situations. 

Write off and write back are different accounting treatments. Once an asset is written off, only then it can be written back under certain conditions. An asset is written off once its value is wholly depreciated. In comparison, an asset is written back once its value increases after it was written off.

Read this article to know how to write off and write back differently from each other. We’ve compiled some of the core facts for you based on accounting laws.

What is Write Off?

On the off chance that an asset has no value, it’s supposed to be written off. Consider if an asset’s worth persistently diminishes and is decreased to nothing; it will become pointless to an organization. In such circumstances, organizations write off such assets.

When the asset is of no utilization to an organization, the organization writes it off. These assets can likewise be written off in the QuickBooks by limiting their worth to nothing.

The IRS (International Revenue Service) urges organizations, business people, and consultants to claim their tax deductions.

What is a Write Back?

If an asset is written off and its value increases again, then it can be written back. Suppose an asset is devalued to zero, and after some time, its value starts to rise again due to some conditions. So in such situations, a company can write back assets in its books or enter them in the balance sheet.

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For example, you sell a company’s product to the market. Suddenly in November 2020, its value decreased to zero, and it no longer remains a charm to society. So you’ll put off selling this product and write it off in the balance sheets.

But as of the beginning of January 2021, the same product’s value slightly started increasing. So at this moment, this asset or inventory can be written back.

How are Write Off and Write Back Different?

In write-off accounting treatment, the asset has no value at all. Whereas write-back is an accounting process in which the asset regains its value and its entry is reversed in the books.

Check out the five main differences between write off and write back to know how both of these differ from each other.

  1. To write off an asset, companies reduce the value of their asset to zero. However, once this asset regains its value a little bit, it is written back.
  1. A write-off is a one-time entry made once the asset has no value or lost all the value. On the contrary, write back entries are also made once. As soon as the customer pays the pending amount, the asset can be immediately written back.
  1. When you write off an asset, you can reduce the cost of taxes by excluding the write-off value. However, you cannot claim a tax deduction of an asset once it’s written back.
  1. If the administration of a company writes off an asset, it will no longer appear in its books and balance sheet.
  1. Whereas a written-back asset is included in the company’s balance sheet. As soon as the asset regains its value, it can instantly be included in the company’s books even though the value of an asset may be less than the value that was before its writing off.
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Examples for Write Off and Write Back:

We’ve compared two easy peasy examples to help you get a clearer vision of both writings off an inventory and writing back an inventory.

Writing Off an Inventory:

For example, in November, the company XYZ Ltd. made an inventory write-off which amounted to $50,000, due to which it has no value in the market now.

So, in this situation, XYZ Ltd. will make the journal entry for the inventory write-off by debiting $50,000 to the loss on the inventory write-off account. At the same time, it will credit the same amount to the inventory account as below:

Head of AccountDebitCredit
Loss on inventory write-off$50,000 
Inventory Account $50,000
Head of AccountDebitCredit
Write off expenses account$50,000 
Total Assets $50,000

In this journal entry, the company XYZ’s total assets on the balance sheet are reduced by $50,000. In comparison, the expenses on the income statement increased by the same amount of $50,000 in November.

Writing Back an Inventory:

For example, in November, XYZ Ltd realized that their ABC client could not pay their $20,000 amount anymore, which means their payment is irrecoverable. So XYZ Ltd. wrote off their $20,000 amount. But, in December, the ABC Client promised to pay their pending amount within 2 to 3 months.

Check out the journal entries for both write-off and write back.

Head of AccountDebitCredit
Write-off of ABC client$20,000 
Account Receivable $20,000
Head of AccountDebitCredit
Write off expenses account$20,000 
Total Assets $20,000

In this journal entry, the company XYZ’s total assets on the balance sheet are reduced by $20,000. In comparison, the expenses on the income statement increased by the same amount of $20,000 in November.

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Head of AccountDebitCredit
Account Receivable$20,000 
Write-off of ABC client $20,000
Head of AccountDebitCredit
Total Assets$20,000 
Write off expenses account $20,000

Conclusion

Write off and write down are two different accounting transactions. Both differ in the way they are made in the company’s books. An asset is written off once its value is depreciated to zero, while an asset is written down once its value is partially declining.

These are some of the easiest accounting transactions that can be done in their books based on their data. One can easily recognize whether the asset is written off or written down by looking at its original and depreciated values.

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