A write-off occurs when the value of inventory falls to zero — it no longer has any worth. A write-down occurs when the inventory's fair market value falls below the cost of the inventory recorded on the balance sheet, but the item can still be sold for some amount north of zero. The write-down amount is the cost of the inventory item minus the current market value of that item. To account for a write-down, a business reduces the value of its inventory by the write-down amount. Assuming no inventory reserve exists, an inventory write-down expense account is created and included on the income statement. Both inventory write-offs and write-downs should be recognized at once and not spread out over multiple quarters or years.