DEFINE NON - CASH EXPENSES

What is a noncash expense?

A noncash expense is an expense that is reported on the income statement of the current accounting period, but there was no related cash payment during the period.

A common example of a noncash expense is depreciation. For instance, if a company purchased equipment on December 31, 2012 for $200,000 cash, it could have Depreciation Expense of $20,000 in each of the next 10 years. As a result its income statement will report Depreciation Expense of $20,000 in each of the years 2013 through 2022. Since there is no cash payment in any of those years, each year’s $20,000 of depreciation expense is referred to as a noncash expense.

Another example of a noncash expense is the amortization of bond issue costs. Perhaps a corporation incurred costs of $300,000 for professional fees and registration fees in order to issue $20 million in bonds. If the bonds will mature in 10 years, the corporation will defer the $300,000 of bond issue costs to the balance sheet and will then amortize the cost (send the cost to expense) at a rate of $30,000 per year. In each of the years of the bonds’ life the corporation’s income statement will report $30,000 ofbond issue costs expense which will be a noncash expense.