What does it mean to "write off" an asset?

To "write off" an asset means to formally recognize that the asset no longer holds value and should be removed from the balance sheet. This action typically occurs when an asset is deemed to be impaired, obsolete, or no longer usable in generating revenue for the business. When an asset is written off, it reflects the realistic valuation of the company's financial position, allowing for more accurate reporting and analysis of assets, liabilities, and net worth. This accounting procedure is essential for maintaining transparency and giving stakeholders a true picture of the company's financial health.

By removing an asset that has no value, a company can ensure that its financial statements are not misleading, which helps in making informed decisions regarding future investments and resource allocation.