Non-Cash Charge

AAA

DEFINITION of 'Non-Cash Charge'

A charge made by a company against earnings, which does not require an outlay of cash. Non-cash charges will lower earnings in the period when the charge was taken, and if it is large enough, can even turn a net profit into a loss. Many companies are inclined to treat non-cash charges as one-time events - even if they appear somewhat frequently - and report adjusted earnings that exclude the impact of such charges.


A non-cash charge may also be referred to as a write-down.

BREAKING DOWN 'Non-Cash Charge'

Non-cash charges are typically against the depreciation, amortization and depletion accounts on a company's balance sheet. Companies take these charges against earnings due to extraordinary circumstances such as accounting policy changes or significant depreciation in the market value of an asset or inventory.


For example, assume company A acquires company B for $500 million, of which $200 million is attributed to goodwill on its balance sheet. If company A subsequently discovers that B is not as valuable as it estimated at the time of acquisition, it may take a non-cash charge of say $100 million against goodwill. This charge will affect A's earnings in the period when it books the non-cash charge.

RELATED TERMS
  1. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. One-Time Charge

    A charge against earnings that is expected to be an isolated ...
  3. Accounting

    The systematic and comprehensive recording of financial transactions ...
  4. Charge-Off

    A term describing an expense on a company's income statement. ...
  5. Cash Charge

    Typically a one-time charge off that a firm makes against its ...
  6. Earnings

    The amount of profit that a company produces during a specific ...
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. Entrepreneurship

    Biggest Merger and Acquisition Disasters

    Find out which companies collapsed after merging.
  3. Investing Basics

    What's Current Portion of Long-Term Debt?

    The current portion of long-term debt is the part of a company’s long-term debt that must be repaid within the next year.
  4. Economics

    Explaining Cost Control

    For a business, cost control entails managing and reducing expenses.
  5. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  6. Economics

    Explaining Accounting Conservatism

    Accounting conservatism is a principal that requires accounting rules be applied with high degrees of verification.
  7. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  8. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  9. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
RELATED FAQS
  1. What is the difference between net income and cash flow from operating activities?

    Net income is a line item in the operating activities section of the cash flow statement. Net cash flow from operating activities ... Read Full Answer >>
  2. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  3. Who actually declares a dividend?

    It is a company's board of directors who actually declares a dividend. The declaration date is the first of four important ... Read Full Answer >>
  4. Are dividends considered an expense?

    Cash or stock dividends distributed to shareholders are not considered an expense on a company's income statement. Stock ... Read Full Answer >>
  5. Do dividends go on the balance sheet?

    The only account recorded on the balance sheet, when dividends are declared and before they are paid out to a company's shareholders, ... Read Full Answer >>
  6. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Depreciation

    1. A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both ...
  2. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  3. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  4. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  5. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  6. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!