Non-Cash Charge


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.

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