Non-cash items are expenses that are recorded on the income statement but do not involve an actual cash payment. For example, a depreciation on a production machine leads to a reduction in profit or an increase in loss. However, the cash flow is not affected because there is no actual cash outflow when the depreciation occurs. In the case of depreciation or amortization, the impairment loss is not caused by an outflow of cash, but exclusively by a so-called non-cash expense. Non-cash income, on the other hand, arises, for example, when a company draws on its provisions. In this case, too, there is no direct cash inflow, as the money is already in the company and has simply been reallocated within the balance sheet.
Non-Cash Income and Non-Cash Expenses
A company’s non-cash income includes reductions or complete reversals of provisions, write-ups, and increases in inventories of finished and not yet finished goods. Non-cash expenses, on the other hand, include depreciation and amortization, the creation or increase of provisions, and reductions in inventories of again finished and not yet finished goods.