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 Says:
1. Bad debt expenses arise when a firm is unable to collect on some of its accounts receivable. 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 EPS figure with and without this charge.

Related Links:
Impairment charge is a term for writing off worthless goodwill, but you need to know what it means and what its potential impact is on EPS. Impairment Charges: The Good, The Bad and The Ugly
Use these key attributes to uncover top-level investments. Find Investment Quality In The Income Statement
Learn this easy-to-understand technique of analyzing a company's financial statements and reports. Introduction To Fundamental Analysis

1. Loan written off as uncollectible bad debt. When full repayment is considered unlikely, loans are removed from the lender's balance sheet and charged against the Loan Loss Reserves account for bad debt. Loans removed from the lender's books may be partially or fully recovered by the lender's collection department or an outside debt collection agency if the loan is secured by collateral or the borrower has additional assets that are not secured by the debt. Closed bank accounts are also removed from bank records by charging them off. Also called write-off. See also Bad Debt; Problem Loan; Workout Agreement.

2. Process of removing uncollected loans or closed accounts from a bank's balance sheet.

Portion of Principal and Interest taken as a loss when a loan is deemed uncollectible.
Example: Ace Savings foreclosed on a mortgage loan but was able to recover only about 75% of outstanding principal and accrued interest from sale of the property. They took a charge-off on their books for the remaining loss.

1.  Hurriedly depart, run away, as in After a few minutes, she charged off to the next exhibit. This term alludes to the military meaning of charge, "attack impetuously." [Early 1500s]
2.  Also, charge against. Consider or count as an accounting loss or expense, as in I'm charging off this purchase to overhead, or Let's charge the new computer against office supplies. [Late 1800s] Also see write off.
3.  Attribute to, blame something for, as in We can charge off these errors to inexperience.

Eliminate or write off.

The term charge-off is used to describe the process of removing from the records of a company something that was once regarded as an asset but has subsequently become worthless.

A classic case is the bad debt, which is an uncollectible debt. A bad debt is a permissible business tax deduction, and a non-business bad debt may also be claimed as a charge-off in the year the debt becomes entirely worthless. Charge-off is generally used in reference to a charge or debt that is not paid when due.