Charge to Earnings Definition

Dictionary of Financial Terms

A change on the balance sheet must also flow through the income statement. If a balance sheet asset increases in value, the company realizes a gain on its income statement, and if an asset decreases in value (or a new liability is created), a charge is taken against earnings. The most common charges are writedowns in inventory or plants and equipment, often triggered by a merger or other corporate action.

For instance: Say a company thought its PCs were worth $1,000, and they've been carried on the books at that cost, but -- lo and behold -- they're really worth $100. Then it has to take a charge to earnings so the balance sheet can reflect the true asset value.

Definitions of Financial Terms