The term write-off describes a reduction in an asset's recognized value. In accounting, it recognizes the reduced or zero value of an asset. In income tax statements, it refers to a reduction of taxable income due to expenses required to produce the income. In vehicle insurance, a write-off is a vehicle which is cheaper to replace than to repair.
The term "write-off" or write down has been used frequently in 2007 and 2008 to describe the actions taken by financial services firms in response to the subprime lending crisis. Firms that traded collateralized debt obligations were forced to take losses when borrowers defaulted on the secured debt that was the underlying asset backing the securities. There's a key distinction, however - a write-down decreases the value of an asset in the company's balance sheet, while a write-off completely eliminates the value of the loan from the balance sheet. Many companies during the subprime mortgage crisis had a combination of both write-offs and write-downs.
A write-down is sometimes considered synonymous with a write-off. The distinction is that while a write-off is generally completely removed from the balance sheet, a write-down leaves the asset with a lower value.
Some common instances of write-offs include:
A negative write-off is the opposite of a write-off. That is, it is term used to refer to an overpayment amount that will not be refunded to the individual or organization that has overpaid on a claim. Negative write-offs can sometimes be seen as fraudulant activity because those who overpay a claim or bill are not informed that they have overpaid and are not given any chance to reconcile their overpayment or be refunded.
Some institutions such as banks, hospitals, universities, and other large organizations regularly perform negative write-offs, especially when the amount that is considered low dollar, i.e. $5.00 at some places or up to $15.00 or more at others.