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Business Finance 101 – What are Non-Cash Expenses?

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What are Non-Cash Expenses?

What are Non-Cash Expenses?

Non-cash expenses are expenses that report on the Profit & Loss / Income Statement of the current period, but no cash payment during the period has actually occurred.

One example of a non-cash expense is depreciation. For example, if a company purchased equipment on October 31, 2011 for $8,000 cash, depending on the allowed proportion by the ATO, it could have a Depreciation Expense of $800 in each of the next 10 years. Since there is no cash payment in any of those years, each year’s $800 of Depreciation Expense is known as a non-cash expense.

Another example in a large company is amortization of bond issue costs. Perhaps a company incurred costs of $250,000 for professional fees and registration fees in order to issue $10 million in bonds. If the bonds will mature in 10 years, the corporation will defer the $250,000 of bond issue costs to the balance sheet and will then amortize the cost (send part of the cost to expense) at a rate of $25,000 per year. In each year of the bonds’ life the corporation’s Profit & Loss will report $25,000 of bond issue costs expense which will be a non-cash expense.

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Author: accountkeepingplus

Administration, bookkeeping and compliance for small business, Training, trouble-shooting, or we can do the books and payroll for you! Self Managed Superannuation Fund Service Provider, free support MYOB Certified Consultant, Reckon/QuickBooks Professional Partner.

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