Referring to financial transactions or assets that do not involve the direct exchange of physical currency (cash). These transactions represent economic activities such as revenue, expenses, or asset acquisitions, but are recorded without an immediate transfer of physical money. Examples include depreciation, accruals, and amortization. non-cash items affect a company's financial statements, particularly the income statement and the statement of cash flows, yet they are not directly reflected in the cash account. The goal is to show a clear and comprehensive picture of the financial position and performance, even if it does not directly influence how a company uses its actual money.
Non-cash meaning with examples
- Depreciation, a non-cash expense, reflects the decline in value of an asset over time. It's recorded on the income statement but doesn't involve an actual cash outflow. For example, a company depreciates a piece of equipment, reducing reported profit, even though no cash changed hands.
- Accruals, like accrued revenue or expenses, are non-cash transactions representing amounts earned or incurred but not yet received or paid. A company may record accrued revenue from services provided even before the customer pays.
- Amortization, similar to depreciation but applied to intangible assets, is another example of a non-cash expense. This involves gradually writing off the cost of an asset, such as a patent or copyright.
- Stock-based compensation is a non-cash expense in which a company pays employees with company stock, not actual cash. This has an effect on the company's cash flow from financing.
- A gain or loss on the sale of an asset is considered a non-cash transaction. This event changes the value of an asset and generates an inflow or outflow, but it's typically reported in the income statement separate from operations and not necessarily with the same effect on actual cash flows.