Charge-Off

AAA

DEFINITION of 'Charge-Off'

A term describing an expense on a company's income statement. A charge-off will fall under one of the following categories:

1. A debt that is deemed uncollectible by the reporting firm and is subsequently written off. This type will be classified as 'bad debt expense' on the income statement, and removed from the balance sheet.

2. A probable one-time extraordinary expense incurred by a company that negatively affects earnings and results in a write-down of some of the firm's assets. The write-down arises due to impairments of assets.

INVESTOPEDIA EXPLAINS 'Charge-Off'

1. Bad debt expenses arise when a firm is unable to collect on some of its accounts receivable (AR). When this occurs, the firm has little recourse; it could either sell the probable bad debt to a collection agency (a sale will be recorded on the firm's books, but not as an expense), or it could just write-off the uncollectible amount as an expense on the income statement.

2. Companies often say something like: "we will take a one-time charge against earnings this quarter." This means that an extraordinary event has occurred and, altough it affects present earnings, it is unlikely to occur again. As a result, a company will usually provide an earnings per share (EPS) figure with and without this charge.

RELATED TERMS
  1. One-Time Charge

    A charge against earnings that is expected to be an isolated ...
  2. Back Charge

    A billing made to collect an expense incurred in a previous billing ...
  3. Non-Cash Charge

    A charge made by a company against earnings, which does not require ...
  4. Accrual Accounting

    An accounting method that measures the performance and position ...
  5. Collection Agency

    A company hired by lenders to recover funds that are past due ...
  6. Income Statement

    A financial statement that measures a company's financial performance ...
RELATED FAQS
  1. How long does it take for items to show up on my credit report?

    Normal information, such as a paid or unpaid notation, usually hits a credit report within 30 days of the close of the billing ... Read Full Answer >>
  2. What are the differences between absorption costing and variable costing?

    Absorption costing includes all costs, including fixed costs, in figuring the cost of production, while variable costing ... Read Full Answer >>
  3. What financial ratios are most useful for an investor to evaluate the liquidity of ...

    An insurance company, like any other nonfinancial company, needs access to liquidity in case it needs to fulfill its debt ... Read Full Answer >>
  4. What is the relationship between degree of operating leverage and profits?

    The degree of operating leverage directly reflects a company's cost structure, and cost structure is a significant variable ... Read Full Answer >>
  5. How does transfer pricing help business?

    Transfer pricing involves the trade of goods or services between two related companies, and both can come out the winner. ... Read Full Answer >>
  6. How do I calculate my effective tax rate using Excel?

    Your effective tax rate can be calculated using Microsoft Excel through a few standard functions and an accurate breakdown ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Impairment Charges: The Good, The Bad And The Ugly

    Impairment charge is a term for writing off worthless goodwill, but you need to know what its potential impact is on EPS.
  2. Options & Futures

    Find Investment Quality In The Income Statement

    Use these key attributes to uncover top-level investments.
  3. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  4. Investing Basics

    Explaining Write-Downs

    A write-down is a reduction in the book value of an asset because it is overvalued compared to the market value.
  5. Economics

    What is Involved in Inventory Management?

    Inventory management refers to the theories, functions and management skills involved in controlling an inventory.
  6. Economics

    What are Noncurrent Assets?

    Noncurrent assets are property that a company owns that will last for more than one year.
  7. Investing Basics

    How Much Do CPAs Make?

    If you're considering becoming a CPA, here's what you might expect to earn.
  8. Economics

    Explaining Activity-Based Costing

    Activity-based costing (ABC) is a managerial accounting method that assigns certain indirect costs to the products incurring the bulk of those costs.
  9. Economics

    What is a Contra Account?

    A contra account is an offset that reduces the value of a related account.
  10. Economics

    What is an Impaired Asset?

    An impaired asset is one where the fair market value of the asset is less than the historical cost (or book value) of the asset.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center