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 costs incurred 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 of bond issue costs expense which will be a noncash expense.
To learn more, see the Related Topics listed below:
After working as an accountant, consultant, and university accounting instructor for more
than 25 years, Harold Averkamp formed AccountingCoach in 2003. His goal was to
share his knowledge and passion for teaching accounting with people throughout the
world at a very low cost. Read More...