Noncash expense definition

What is a Noncash Expense?

A noncash expense is an expense for which there is no related cash outflow in the same period. In addition, an accrued expense may be recorded for which the related cash expenditure is in the following period. Consequently an accrued expense can also be considered a noncash expense.

Examples of Noncash Expenses

There are several types of noncash expense. Here are the most common ones:

• Depreciation expense. This is the periodic charge to reduce the book value of a tangible asset over its useful life.

• Amortization expense. This is the periodic charge to reduce the book value of an intangible asset over its useful life.

• Asset write-down. This is a charge against the book value of an asset to reflect its reduced value; there is no associated cash outflow.

• Reserve expense. This is a charge made to a reserve, such as for bad debts or obsolete inventory, where there is no immediate cash outflow.

• Stock-based compensation. When a corporation pays an employee in stock in exchange for services rendered, the stock issuance has no associated cash outflow, and so is a noncash expense.

• Unrealized loss. A decline in value for an asset that has not yet been sold is a noncash expense, since no cash changes hands as a result of the decline.