What does it mean to write off a receivable?

Writing off a receivable means removing it from the accounting records when it is deemed uncollectible. This process typically occurs when a company has made efforts to collect the debt but is unable to do so after a predetermined period, indicating that it is unlikely to be paid. Once a receivable is written off, it no longer appears as an asset on the company's balance sheet, reflecting a more accurate financial position.

By removing the bad debt from the records, the company acknowledges that it will not receive payment, which helps to maintain the integrity of its financial statements. It also allows the company to focus on accounts that are collectible, thereby streamlining its accounts receivable management.

This practice is fundamental in ensuring that the financial records accurately represent the company’s expected cash inflows, thereby facilitating better financial planning and analysis.