A write-off is the removal of an asset's remaining value from the books, recording it as an expense. Common write-offs include bad debts, obsolete inventory and damaged assets.
Writing off an asset means acknowledging that it no longer has recoverable value and removing it from the balance sheet. The most common write-offs for small businesses are bad debts (removing uncollectable receivables), obsolete or damaged inventory (reducing stock to its realisable value) and fully depreciated or damaged fixed assets (removing them from the asset register). A write-off affects both the balance sheet (reducing the asset) and the profit and loss statement (recording an expense). For tax purposes, write-offs are generally deductible, but the rules vary by type and jurisdiction. Some write-offs have specific requirements - for example, bad debt write-offs may require evidence that you attempted to collect the debt. Write-offs should be properly documented with the reason, authorisation and supporting evidence. SortBooks helps manage write-offs by flagging potential bad debts based on ageing analysis and ensuring write-off transactions are correctly recorded in Xero with appropriate documentation.
SortBooks helps with the bookkeeping behind write-off by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing write-off by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Bad debt is money owed to your business that you determine is uncollectable. Writing off bad debt removes the amount from accounts receivable and records it as an expense.
Depreciation is the accounting method of allocating the cost of a tangible asset over its useful life. It reduces taxable income each year and reflects the asset's declining value.
Inventory refers to the goods your business holds for sale or uses in production. It is a current asset on the balance sheet and its cost flows to COGS when sold.
An asset is anything of value that your business owns or controls. Assets are listed on the balance sheet and include cash, receivables, inventory, equipment, property and intangible items.
An expense is a cost incurred in the process of earning revenue. Expenses reduce your profit and are recorded on the profit and loss statement in the period they are incurred.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.