Charge off?

A charge-off is considered to be "written off as uncollectable." A major reason for this involves taxes. Every year, corporations file a Profit And Loss Statement with the Internal Revenue Service. It is also made available to federal and state regulators, and to shareholders. All of the year's bad debts (individual charged-off accounts) are added together as an item in the "Loss" section of the P & L Statement, and are deducted from the corporation's tax return, much like other business expenses. To banks, bad debts and even fraud are simply part of the cost of doing business

Do all companies eventually charge off?

Contrary to what dfawa said, chargeoffs are not directly expensed as a writeoff. Rather, a chargeoff is called so because the balance is "charged" against a loss reserve, which is a contra-asset setup against a receivables portfolio in anticipation of expected bad debt. In essence, a charge affects the balance sheet, not the P&L statement -- the lender actually "predicted" its losses and expensed your bad debt before your account even became delinquent.

I've posted about 20 pages on how chargeoffs are accounted for, so I won't do it again right now. But if you would like me to clarify, I will.

To guest, all companies will eventually chargeoff. How long it takes them, depends on their policies and regulations in place. For example, banks which are regulated by the FDIC are generally required to chargeoff when an account is 120 (or maybe it's 180?) or more days past-due. However, a private lender with no such regulations, wouldn't necessarily have to chargeoff if they didn't want to -- it's just that if they didn't, they would be inflating the net realizable value of their assets.