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My Introspective

by Laurus Nobilis
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Finance Management

Finance Basics: Write Offs (B)

 

Write Off

 

 

What are the Write Offs?

 

Posted: Apr 2009


<<< Previously on Finance Basics: Loan Financing

WRITE-OFFS

When an asset loses some or all of its value, this loss must be accounted for.

Assets such as inventory might suffer losses due to:

  •  unforeseen events

  •  obsolescence

 

 

ACCOUNTING FOR WRITE-OFFS

The loss of some inventory will be accounted for as follows:

•  on the profit & loss statement the value will be written-off as an expense

•  the value of the loss is removed from the inventory item on the balance sheet

•  there is no effect on the cash flow statement.

 

 


Business Case Study


Business Case Study

DAY SEVEN

Problem appeared!

The one of coolers broke down during the night, so 2 boxes of sandwiches got spoiled. Nothing can be done to save the situation; JS must write-off the lost sandwiches.

HS continues to sell the reduced quantity of sandwiches and also remembers the need to pay back the loan with interest to the Bank.

Business Finance

KEY TIPS

•  When the value of an asset diminishes, the loss is written-off in the profit & loss statement as an expense (extraordinary loss).

•  A negative cash position is not possible, so some form of financing must be arranged to cover this situation.

 

 

 

>>> Next on Finance Basics: Production Ventures 

 

 

 

 

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