Impairment
Financial Accounting glossary · Assets: Cash, Receivables, Inventory, PP&E & Intangibles
Definition
Reduction in the recoverable amount of an asset below its carrying value; recognized as a loss.
Impairment in plain English
Impairment is accounting's way of admitting 'this asset isn't worth what we've got it recorded at anymore.' Imagine your books say a factory machine is worth $50,000, but a newer technology made it nearly useless and it could realistically only bring in $20,000 of value now — you're forced to knock the recorded value down and report that $30,000 drop as a loss. The point is honesty: financial statements shouldn't brag that you own something valuable when its real earning power has quietly collapsed. It's the opposite of pretending a wilted plant is still fresh just because you paid full price for it.
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