Why is stock based compensation expense considered a non-cash expense?
When a company records stock-based compensation expense, there isn’t an actual cash outflow. As you can see in the journal entry below, the company doesn’t actually credit cash to fund the stock option expense. Instead, the company funds the stock option expense by issuing more common stock.
An example of another type of non-cash expense would be depreciation expense.
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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.
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 stock options being exercised?
The visual below illustrates the two key activities that must be performed. First, you have to figure out how to record the stock option expense during the vesting period. Next, you need to figure out what entry is needed when the stock options are exercised. For example, on January 1, Year 1, Thayer Robotics granted […]