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 of bond issue costs expense which will be a noncash expense.

Learn more about Depreciation.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.

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