Why write-off matters to a first-time founder
Keeping an unrecoverable amount on the balance sheet overstates resources and can distort profit. Recognising the loss promptly supports credible accounts and better decisions. Approval, evidence, tax deductibility and collection duties vary, so writing off a receivable in the accounts does not necessarily end efforts to collect it.
Examples of write-off
A customer owing ₦8 million enters liquidation and the company has no realistic recovery after reviewing the liquidator’s notice. The company writes off the remaining receivable, reducing the asset and recording an expense or using an existing loss allowance. It retains documents needed for audit, tax and any later recovery.
Common misunderstanding
A write-off is not free money, debt forgiveness or an automatic tax refund. It records a loss that has already occurred economically. A write-down reduces value but leaves some carrying amount; a write-off removes the remaining amount. Tax authorities may apply separate evidence and timing rules.
When to use it
Use it when reliable evidence shows that no material value is recoverable from an asset or receivable. Follow the company’s approval policy, preserve supporting records and consider insurance or legal recovery. Confirm accounting and tax treatment with advisers when the amount is material or jurisdictional rules are unclear.