When do write-downs affect income statement?
Further to earlier question, when do write-downs or write-ups affect income statement?
Regarding assets or liabilities or equities?
Investopedia suggests a write down to any asset should be reflected as an impairment loss (expense) in the income statement.
https://www.investopedia.com/terms/w/writedown.asp
likewise, write down of owed debt (a liability) is recorded as a gain on income statement.
however, people on this forum tell me that write down of deferred revenue (a liability) doesn’t get reflected on income statement.
yet write-down of inventory is reflected as an expense in income statement.
can someone explain?
It sounds like you’re trying to learn the basics and people are giving u some complicated ass answers.
If you’re trying to break into IB / prep for interview questions I’m assuming based on how you’re asking these
I’m assuming ‘write down’ of DR you’ll want to say it’s recognized as revenue (and flows thru)
And if it’s an asset, recognize it as a non cash gain/expense on the IS (and flow thru)
If ur not a young person, who also doesn’t have access to the IB guides, well shid my b if ur looking for something different
If ur looking for something different this is an asset trying to account for FMV, and if it becomes changed, then this write down process to impair the asset is what decreases the value (and recorded on statements as revenue or expense).
The deferred revenue is the same thing if it’s recognized as revenue, but doesn’t show up on IS if they don’t perform the service (because revenue you need to perform the service to recognize). So mostly is just differences in what the account actually means e.g. revenue recognition rules vs. asset FMV process
Don't think about these things like rules. Try and think about each item and what they actually represent. Inventory often consists of physical objects and such that have a value if you sell it off (as scrap or something), so it can be written down, and that is reflected on the income statement.
Deferred revenue on the other hand (along with things like accounts payable, accounts receivable, etc.) do not represent physical objects. They are essentially an item to reflect some difference in timing. How would you write down the value of deferred revenue? It's not physical. It just represents a portion of revenue you have collected but haven't recognized on the income statement. So instead, it gets recognized over time, not written down, and hits the income statement that way (as revenue)
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