Net Charge Offs

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Net Charge Offs is the total value of bad debt charged-off by a company at the end of a reporting period.

When a company is owed money it can claim that debt as an asset on its balance sheet. However, if the company does not believe the debt will be repaid they can charge the debt off as bad debt. When a company deems debt uncollectible, they can write-off the debt as an expense on their income statement and remove the owed debt from their balance sheet. This is known as a charge off.

Net charge-offs, then is the amount that a company charged-off during the accounting period, minus any collections made from debt that was charged-off in previous periods. This means that if net charge-offs are negative, the company collected more than it charged-off in bad debt during the accounting period. Similarly, if a company has positive net charge-offs, they wrote down more bad debt than they collected on during the recording period. Net charge-offs are used by analysts to measure how reliable a companies debtors are.

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