Your Ask Joey ™ Answer

Why is depreciation and amortization expense considered a non-cash expense?

Depreciation and amortization are considered to be a non-cash expense because the company does not have an actual cash outflow for those expense. Depreciation and amortization are recorded to reduce the taxable income for a company. As you can see below, there is no cash outflow when depreciation expense is recorded.

Back To All Questions

You might also be interested in...

  • How to calculate EBITDA?

    EBITDA is a company’s net income but excludes the impact of interest income or expense related to debt instruments, depreciation and amortization, and stated and federal income taxes. The whole point of calculating EBITDA is to better understand a company’s GAAP cash flow. The reason we exclude depreciation and amortization is because it is not...

  • What is the journal entry to record depreciation expense?

    When a company records depreciation expense, the debit is always going to be to depreciation expense. The offsetting credit will be to accumulated depreciation, which is a contra-asset (negative) on the balance sheet. Property, plant, and equipment is recorded at their book value (i.e. cost), and you must include accumulated depreciation to understand what the...

  • What is the difference between EBITDA and EBIT?

    The only difference between these two terms is that for EBITDA, you would add back depreciation and amortization since it’s a non-cash expense. In EBIT, you do not add back depreciation and amortization (they burden EBIT).