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Simple English definitions for legal terms
noncash charge
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A quick definition of noncash charge:
A noncash charge is a cost that a company has to pay, but it doesn't involve giving out any money. For example, when a company's equipment gets old and loses value, they have to record that loss as a noncash charge. It's like saying, "We didn't spend any money, but we lost something valuable." Noncash charges are important to keep track of because they affect a company's profits and financial health.
A more thorough explanation:
A noncash charge is a cost that a company incurs that does not involve an outlay of cash. This can include expenses such as depreciation or amortization.
For example, let's say a company purchases a piece of equipment for $10,000. Over time, the equipment will lose value and become less useful. The company can account for this loss of value by taking a noncash charge for depreciation. This charge reduces the value of the equipment on the company's balance sheet, even though no cash has actually been spent.
Another example of a noncash charge is amortization. This is the process of spreading the cost of an intangible asset (such as a patent or trademark) over its useful life. Again, this reduces the value of the asset on the balance sheet, even though no cash has been spent.
Noncash charges are important to consider when analyzing a company's financial statements, as they can have a significant impact on the company's profitability and cash flow.