CASH CHARGE

A typically one-time charge off that a firm makes against its earnings as part of a plan to downsize or to improve company efficiency. A cash charge requires an initial outlay of cash. Cash charges are charges that are not expected to be recurring; the company can record the cash charge as an extraordinary charge on the firm’s balance sheets while taking a charge against earnings. A charge off appears as an expense on the firm’s financials, thereby reducing net income.

An example of a cash charge can be illustrated in a company that is making an attempt to downsize and reduce costs. The company can make a cash charge against earnings to provide early retirement packages to higher-paid employees, thereby creating an opportunity to staff these positions with lower-salaried individuals. An initial cash outlay is required to fund the retirement packages, but the expected cash savings measures implemented through reduced salary liabilities rationalize the upfront expense.