An inventory write-down is the required process used to reflect when an inventory loses value and its market value drops below its book value. The write-down impacts the balance and income statement of a company—and ultimately affects the business's net income and retained earnings.

What does a write down of inventory mean?

An inventory write down is an accounting process used to record the reduction of an inventory's value and is required when the inventory's market value drops below its book value on the balance sheet.

Can you write off inventory?

Inventory isn't a tax deduction. Most people mistakenly believe that inventory is a line-item that they can deduct on their taxes. Unfortunately, this is not true. ... This means that inventory will decrease your “income before calculating income taxes” or “taxable income.”