Inventory Write-Down
Definition
Reducing the value of inventory on your books because it is damaged, obsolete or can only be sold for less than it cost. A write-off removes it entirely.
Want a deeper explanation?
Write-downs are painful but honest. Carrying unsellable stock at full cost makes your balance sheet and margins look better than they are.
Some businesses keep an obsolescence reserve so the hit is spread out rather than all at once. Watch for: a habit of never writing anything down, which usually ends in one huge adjustment before a sale or audit.
Example
500 units costing $12 each can now only be sold for $5 through a liquidator. You write them down by $3,500 to reflect what they are really worth.