How to Calculate Write-Offs From Financial Statements


Business owners like write-offs because they allow the business to write-off expenses against net income. A write-off is an accounting concept used to denote a downward adjustment to income. The higher the write-off, the more the business gets to deduct from net income. And lower net income means the business will pay less in taxes. As a result, businesses try to capture as many write-off opportunities as possible, which can best be seen by reviewing the income statement.

Obtain the income statement that typically is included in the annual report. You can obtain the most recent version of the annual report by contacting the company's investor relations department or downloading a copy from the company website.

Look for the line item "gross profit." Gross profit equals sales minus the cost of goods sold. The cost of goods sold also contains a write-off for depreciation of those goods that were sold.

Find the line item "operating income." This is the second level of income after gross profit and includes operational and administrative expenses associated with making sales. Common write-offs associated with operational income are business expenses such as office supplies, travel, utilities and rents.

Add in any expense related to repayment of debt. Interest expense is considered tax deductible and is included in the calculation of total write-offs.

Sum all write-offs related to gross profit, operational income and debt for total write-offs or adjustments to net income.

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