Transactions reported on the statement of cash flows that do not increase or decrease cash, but that result in significant investing and financing activities are referred to as Non Cash activities.
What are considered non-cash expenses?
- Noncash expenses are those that appear on the income statement but do not entail a cash transaction. Depreciation is a frequent example of a noncash expenditure. When depreciation is deducted from the income statement, the net profit is reduced, but there is no cash flow.
- Non-cash items include depreciation, amortization, deferred income tax, and stock-based compensation paid to workers.
- Instead, include a footnote at the bottom of the statement of cash flows or in the notes to the financial statements to record non-cash investing and financing activity. Non-cash investing and financing activity can also be disclosed in a separate schedule.
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