what is a non cash item 
a non cash item has two different meanings in banking the term is used to describe a negotiable instrument such as a check or bank draft that is deposited but cannot be credited until it clears the issuer s account alternatively in accounting a non cash item refers to an expense listed on an income statement such as capital depreciation investment gains or losses that does not involve a cash payment understanding non cash itemsincome statements a tool used by companies in financial statements to tell investors how much money they made and lost can include several items that affect earnings but not cash flow that s because in accrual accounting companies measure their income by also including transactions that do not involve a cash payment to give a more accurate picture of their current financial condition examples of non cash items include deferred income tax write downs in the value of acquired companies employee stock based compensation as well as depreciation and amortization banks often put a hold of up to several days on a large non cash item such as a check depending upon the customer s account history and what is known about the payor e g if the issuing organization has the financial means to cover the check presented the short period during which both banks have the funds available to them between when the check is presented and the money is withdrawn from the payor s account is called the float depreciation and amortization are perhaps the two most common examples of expenses that reduce taxable income without impacting cash flow companies factor in the deteriorating value of their assets over time in a process known as depreciation for tangibles and amortization for intangibles for example say a manufacturing business called company a forks out 200 000 for a new piece of high tech equipment to help boost production the new machinery is expected to last 10 years so company a s accountants advise spreading the cost over the entire period of its useful life rather than expensing it all in one big hit they also factor in that the equipment has a salvage value the amount it will be worth after 10 years of 30 000 depreciation seeks to match up revenue with its associated expenses dividing 170 000 by 10 means that the equipment purchased will be shown as a non cash item expense of 17 000 per year over the next decade however no money was actually paid out when these annual expenses were recorded so they appear on income statements as a non cash charge special considerationsnon cash items frequently crop up in financial statements yet investors often overlook them and assume all is above board like all areas of financial accounting it sometimes pays to take a more skeptical approach one of the biggest risks associated with non cash items is that they are often based on guesswork influenced by past experiences users of accrual accounting have regularly been found guilty innocently or not of failing to accurately estimate revenues and expenses for example company a s equipment may need to be written off before 10 years or perhaps prove to be useful for longer than expected its estimated salvage value may be wrong too eventually businesses are required to update and report actual expenses which can lead to big surprises 