What Is a Noncash Item?
The economic value of an asset is closely related to its future cash flow, but the cash flow is not reflected in the income statement. In the income statement, some of the expenses that match the income are non-cash items and do not affect cash flow.
Non-cash item
Right!
- Chinese name
- Non-cash item
- Foreign name
- noncash item
- Important project
- depreciation
- Features
- Does not affect cash flow
- Listed at
- Income statement
- The economic value of an asset is closely related to its future cash flow, but the cash flow is not reflected in the income statement. In the income statement, some of the expenses that match the income are non-cash items and do not affect cash flow.
- Noncash item
- Among these non-cash items, the most important one is " depreciation ", which is an accountant's estimate of the cost of equipment wear and tear during the production process. Assume that a fixed asset has a life of 5 years and no residual value after 5 years. The purchase price is $ 1,000. For the accountant, the cost of $ 1,000 must be amortized over the life of the asset. If the straight-line depreciation method is used, the annual depreciation cost for five years is $ 200. However, from the perspective of financial management, the cost of this asset is the actual cash outflow when the fixed assets are acquired (that is, the cost is $ 1,000, not the accounting depreciation fee of $ 200 a year).
- Another non-cash item is deferred tax . Deferred tax is caused by the difference between accounting profits and actual taxable income. In theory, if the taxable income of this year is less than the accounting profit, the taxable income of the subsequent years will be greater than the accounting profit, that is, the unpaid taxes in the current year will be paid in the subsequent years, which will form a corporate liability , Represented as a deferred tax credit on the balance sheet. However, from a cash flow perspective, deferred taxes are not a cash outflow.