Dictionary / Fixed Charges
What does Fixed Charges mean in accounting?
Quick definition
Accrual & timingUnavoidable overhead, particularly interest costs, depreciation, amortization of intangibles and of discount on funded debt, and rent of leased property. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
Refinance coverage needs four P&L lines
You run a cabinet shop. On June 11, the bank emails that your equipment refinance needs last year's fixed-charge coverage. You pull the P&L and add four lines: $4,860 of interest on the equipment note, $36,000 of shop rent to the industrial park, $11,200 of depreciation on the CNC router and edge-bander, and $2,400 of amortization on the customer list you bought from a millwork shop. Those four amounts, $54,460, are the fixed charges you send so the bank can compare the total to earnings. Leave shop salaries and liability insurance out of this add-up; they do not vary with jobs, but they are not this bundle.
Unpaid press note is not a charge
You run a screenprint shop. In November you are deciding whether to sign a second-bay lease at an industrial park, and you treat the $78,000 still owed on the press note to the credit union as a fixed charge you must cover before adding rent. That remaining principal is a fixed liability, the long-term debt itself. The charge is the monthly interest, plus any depreciation or amortization already on the P&L, not the unpaid balance. Pull interest, current shop rent, and press depreciation from the October P&L if you want a coverage read; do not put the note balance on that list.
Why it matters
You need this phrase when a lender, a refinance, or a coverage check asks whether earnings can cover unavoidable overhead: interest, depreciation, amortization of intangibles or of discount on funded debt, and rent on leased property. You post those items every close if you have loans, leases, or depreciable assets; you add them as one total only a few times a year. Fold in salaries or insurance and you are describing a fixed cost (or expense), any operating cost that does not move with volume. Point at remaining loan principal and you are looking at a fixed liability, the long-term debt itself, not the cost of carrying it.
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What is Fixed Charges in bookkeeping?
Unavoidable overhead, particularly interest costs, depreciation, amortization of intangibles and of discount on funded debt, and rent of leased property.
When should I use Fixed Charges?
Use Fixed Charges when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Fixed Charges?
Fixed Charges is used for fixed charges entries, while F.O.B covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.