Inventory Write-Down (Write-Off)

Category

Income Statement

Units

Currency

US-GAAP elements

InventoryWriteDown

Reference

ASC 330, Inventory

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

An inventory write-down is a loss recorded when inventory is worth less than the cost on the company's books, because goods have become obsolete, damaged, slow-moving, or cheaper to replace. The carrying amount of the inventory is reduced and the loss is charged to earnings, usually within cost of goods sold.

A write-off is the extreme case, removing the full cost of inventory that has no remaining value. Both are non-cash charges: the cash was spent when the inventory was bought or made.

Under ASC 330, inventory measured using FIFO or average cost is carried at the lower of cost and net realizable value, the estimated selling price less the costs to complete and sell it. Inventory measured using LIFO or the retail method uses a lower of cost or market test instead. When the value falls below cost, the difference is written down.

In US GAAP a write-down sets a new cost basis, and it is not reversed if the value later recovers; IFRS, by contrast, allows reversals. The loss is usually included in cost of goods sold, with material or unusual write-downs disclosed separately. In XBRL filings it is tagged InventoryWriteDown, and because it reduces net income without using cash, it is added back as a non-cash adjustment in the operating section of the cash flow statement.

For analysis, write-downs are a signal about demand and product cycles. A large charge can mean a company overproduced or misjudged a product transition, and it depresses gross margin in the quarter it is taken. Because the written-down inventory now carries a lower cost, margins on its eventual sale can look unusually strong, so a write-down quarter and the quarters after it are worth reading together.