Written and maintained by CASRAI Editorial Board
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General information on accounting and tax rules, not tax or accounting advice. Confirm treatment with a qualified accountant.
Short answer
An inventory write-off removes the book value of stock that can no longer be sold or used, such as expired reagents, damaged consumables or lost goods. A write-down only reduces the value to what the stock is still worth. Under IAS 2, inventory is measured at the lower of cost and net realisable value, and the reduction is an expense in the period it occurs (IFRS Foundation, checked 2026-11-03).
Definition and scope
“Write-off” is common business usage, not a heading in the sources below. IRS Publication 538 has no section titled write-off, so this page uses the term for the practical outcome: stock leaves the inventory count or is carried at a much lower value, with a record of why. Three related actions are easy to confuse.
- Write-down: the item stays on the books at a reduced value. IAS 2 requires the lower of cost and net realisable value, where net realisable value is the estimated selling price in the ordinary course of business, less completion and selling costs.
- Write-off: the remaining value is removed because the item has no realisable value or is gone.
- Disposal: the physical removal of the item (return, sale, destruction). It is a separate step from the accounting entry. For laboratory chemical and biological material, see lab waste disposal.
How a write-off is measured
Two measurement bases matter for a US lab or clinic store, and they differ in wording.
Under IAS 2
Inventories are measured at the lower of cost and net realisable value. A write-down to net realisable value is recognised as an expense in the period it occurs, together with all losses of inventory (IFRS Foundation IAS 2 summary page, checked 2026-11-03).
Under US federal tax rules
26 CFR 1.471-2(c) gives two bases: cost, and cost or market, whichever is lower. Goods that are unsalable at normal prices or unusable in the normal way because of damage should be valued at bona fide selling prices less direct cost of disposition. A bona fide selling price means an actual offering of the goods during a period ending no later than 30 days after the inventory date. IRS Publication 538 repeats this: compare the market value of each item with its cost, use the lower, and value each item separately. Goods on firm fixed-price sales contracts, and LIFO goods, must be inventoried at cost (Publication 538, checked 2026-11-03).
The practical point: for tax valuation, damaged stock is not automatically valued at zero. It is valued at its bona fide selling price less direct cost of disposition. Separately, the regulation values raw materials and partly finished goods held for use or consumption on a reasonable basis, never below scrap value.
Loss of inventory under IRS rules
Publication 538 describes two routes for a casualty or theft loss of inventory. You can claim it through the increase in cost of goods sold by properly reporting opening and closing inventories, or claim the loss separately, in which case you adjust opening inventory or purchases to remove the loss items so they are not counted twice. The same loss cannot be claimed twice. Any insurance or other reimbursement is taxable, and a separately claimed loss is reduced by reimbursement received or expected. Supplier-forgiven debt arising from the loss is taxable income. For a disaster loss, the publication allows a deduction in the preceding year, and opening inventory for the loss year must also be decreased.
Triggers and which treatment the sources point to
| Situation | Treatment the source describes | Source |
|---|---|---|
| Item can still be sold, but for less than cost | Carry at the lower of cost and net realisable value (write-down); expense in the period | IAS 2 summary |
| Item is unsalable or unusable because of damage | Value at bona fide selling price less direct cost of disposition | 26 CFR 1.471-2(c); Pub 538 |
| Item is lost to casualty or theft | Claim through cost of goods sold, or claim separately without double counting; reimbursement is taxable | Pub 538, Loss of Inventory |
| Goods on a firm fixed-price sales contract, or LIFO goods | Inventory at cost, not cost or market | Pub 538 |
Record checklist for lab and clinic stock
This checklist is practical record-keeping advice from the editors, not a regulatory mandate. Each tax and IAS 2 rule above turns on facts about a specific item on a specific date, so records that tie the entry to those facts are the useful ones.
- The count or inventory date and the count sheet the item appeared on.
- The reason: expiry, damage, loss or theft, or obsolescence, with the expiry or damage record.
- Original cost and the value used after the write-down, with the basis (net realisable value, or offered price less disposal cost).
- Any offer made for the goods, with its date, if the bona fide selling price is used.
- The disposal record: returned to vendor, sold, destroyed, with the date.
- Any insurance claim or reimbursement received.
- Who approved the entry.
Before writing stock off, check whether it can be moved first. See deadstock and obsolete medical supply inventory for the disposition options, FEFO for rotating short-dated stock, and vendor return and restocking policies for returns. For how the reduced value is calculated see inventory valuation, and for how the adjustment is recorded see inventory adjustment reason codes.
Common misunderstandings
“A write-off is a tax deduction in full”
The regulation values unsalable goods at a bona fide selling price less disposal cost, and Publication 538 taxes reimbursement. The deduction depends on the valuation and loss route, so it is not simply the book cost.
“Write-down and write-off are the same”
In common usage a write-down is a partial reduction and a write-off is removal of the remaining value. IAS 2 itself speaks of write-downs to net realisable value.
“A loss can be claimed through cost of goods sold and separately”
Publication 538 says the same loss cannot be claimed twice.
FAQ
What is an inventory write off?
It is the removal of the recorded value of stock that has expired, been damaged, lost or become unsaleable. It is distinct from physically disposing of the goods.
Which accounting rule sets the value?
Under IAS 2, the lower of cost and net realisable value. For US federal tax, cost or cost or market, whichever is lower, per 26 CFR 1.471-2(c).
Can damaged goods be valued at zero for tax?
The regulation says such goods are valued at bona fide selling prices less direct cost of disposition, not at zero by default. The scrap-value floor in the regulation applies to a different category, raw materials and partly finished goods held for use or consumption.
Is insurance money taxable?
Publication 538 states that insurance or other reimbursement for an inventory loss is taxable.
Sources
- IRS, Publication 538, Accounting Periods and Methods, https://www.irs.gov/publications/p538 (checked 2026-11-03).
- 26 CFR 1.471-2(c), Valuation of inventories, https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subpart-D (checked 2026-11-03).
- IFRS Foundation, IAS 2 Inventories, summary page, https://www.ifrs.org/issued-standards/list-of-standards/ias-2-inventories/ (checked 2026-11-03).
