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A Detailed Analysis: What Are Non-Cash Expenses in Corporate Travel?

What Are Non-Cash Expenses

Non-cash expenses are an important component of financial reporting that reflect reductions in asset values or the recognition of expenses paid for in earlier periods. While they do not directly impact cash flow, monitoring cashless expenses provides valuable insight into a company’s performance and asset valuations. 

Understanding and dissecting these cashless expenses in corporate travel is invaluable for a holistic assessment of a company’s financial performance. This blog provides a detailed analysis of types of cashless expenses in corporate travel.

What are Non-cash Expenses?

Cashless expenses reflect a decrease in the value or use of assets over time. Unlike cash expenses, no cash expenses don’t require a payment or cash outlay when people incur them. However, cashless costs can still impact a company’s profitability and cash flow.  

Having proper knowledge of cashless expenses is essential for travel managers because these costs can make a travel program seem more or less profitable than it truly is. 

Cashless expenses may be excluded from some budget reports, so travel managers must be aware of their impact separately. Having visibility into cash and no-cash expenses gives travel managers a complete picture of their program’s performance. 

Types of Non-Cash Expenses

Here are the 6 types of non-cash expenses;

1. Depreciation 

Depreciation is a cashless expense that records the declining value of assets over time. For corporate travel, depreciation applies primarily to fixed assets like company vehicles and jets. 

Depreciation is calculated using the straight-line method for corporate travel assets like cars and jets. This spreads out the cost evenly over a set number of years. For example, if a corporate jet costs $20 million with a useful life of 20 years, a $1 million depreciation expense would be recorded yearly for 20 years. 

Recording depreciation allows a company to properly account for wear and tear on vehicles and jets used for corporate travel. While no cash is paid out yearly for depreciation, it represents the actual economic cost of using these assets over time. Tracking depreciation also allows for better financial planning when these corporate travel assets need to be replaced down the road.

2. Bad Debt Expense 

Bad debt expenses arise when customers fail to pay for products or services rendered. For companies in the travel industry, bad debt often stems from uncollected receivables related to airline tickets, hotel stays, car rentals, and other travel services. 

Bad debt is considered a no-cash expense because it does not require an outlay of cash. The transaction has already occurred, and revenue has already been recognized. Recording bad debt involves removing the receivables from the books and establishing an allowance for doubtful accounts.

How to Calculate Non-Cash Expenses (Bad Debt Expenses)

When estimating bad debt for a period, companies analyze historical loss rates and current economic conditions. Specific identification methods can also be used to flag high-risk accounts. These estimates are then used to record bad debt expense, which flows to the income statement and reduces net income.

For travel management software and systems, bad debt calculations can be automated based on customer profiles and past payment history. Estimates can be tailored and routinely updated by categorizing customers into risk pools. It allows travel companies to accurately reflect bad debt and maintain proper allowance balances.

Nonpayment losses directly linked to corporate travel expenses can represent a notable cashless cost. Careful analysis of uncollectible receivables and trends among business travelers enables business travel management teams to anticipate bad debt, budget accordingly, and integrate bad debt planning into financial reporting processes.

3. Deferred Taxes

Deferred tax liability is a type of cashless expense companies incur related to taxes. Here’s an overview of how deferred taxes work and how to calculate them for business travel expenses:

Deferred tax liability arises when a company’s taxable income exceeds its accounting income. It creates a timing difference between when the expenses are recognized for accounting purposes versus tax purposes.

For example, travel expenses are immediately deductible for tax purposes. However, some travel costs may need to be capitalized and amortized over time for accounting purposes. The timing difference creates a deferred tax liability.

The deferred tax liability represents taxes that must be paid when the timing differences reverse. So, it is considered a no-cash expense in the current accounting period.

How to Calculate Non-Cash Expenses (Deferred Taxes)

To calculate deferred taxes for travel, determine the total expenses for tax purposes and subtract the travel expenses for accounting purposes. Multiply the difference by the corporate tax rate. This is the estimated deferred tax liability.

The deferred liability will be reduced as travel expenses are amortized for accounting in future years. The accounting and tax travel expenses have equalized when the liability reaches zero.

4. No-Cash Interest Expense

Cashless interest expense arises when interest is accrued but not paid in cash. This commonly occurs with corporate cards and other financing used for business travel expenses

Some examples of no cash interest expense related to corporate travel include:

  • Interest accrues on monthly credit card balances but has not yet been paid out in cash. Even though no interest payment has been made, the interest expense still must be recognized on financial statements.
  • Discounts are offered by travel suppliers in exchange for upfront prepayment for future services. The value of these discounts is considered prepaid travel expenses. As employees use the pre-purchased travel over time, a portion of the discount must be recognized as cashless interest expense each period.
  • Interest accrued but not paid on travel supplier invoices with payment terms extending beyond a certain period.

Properly tracking and recording cashless interest related to corporate travel ensures these actual expenses are reflected on financial statements, even when cash payment has yet to be made. It provides a more accurate picture of profitability and cash flows.

5. Loss on Disposal of Assets

A typical no-cash expense for companies, especially in the travel industry, is a loss on the disposal of assets. It occurs when a company sells or disposes of an asset for less than its carrying value on the balance sheet.  

A significant example would be the disposal of a private jet or aircraft. Many large companies maintain corporate jets to shuttle executives between meetings and business trips. However, as these aircraft age, companies may decide to sell them and upgrade to newer models. If the sale price is less than the jet’s net book value, the difference is recorded as a cashless loss on the disposal of assets.

How to Calculate Non-Cash Expenses (Loss on Disposal of Assets)

To calculate loss on disposal, take the asset’s net book value and subtract the proceeds from selling the asset. Net book value is the asset’s historical cost less accumulated depreciation to date.

For instance, if a corporate jet cost $20 million originally and had $8 million of accumulated depreciation to date, its net book value would be $12 million. If the company sold it for $9 million, the cashless loss on disposal would be $3 million ($12 million – $9 million).

Recording loss on disposal provides an accurate picture of the economics of replacing older assets. While no cash expense is incurred, it represents the loss in value relative to the asset’s accounting basis. When deciding to upgrade planes and other assets used for corporate travel management programs, travel managers need to understand.

6. Pending Reimbursements

Pending reimbursements stemming from employee-incurred expenses during corporate trips represent a significant liability for the company until these costs are settled. As employees shoulder the financial burden upfront for travel-related necessities like meals, transportation, and lodging, the company acknowledges the financial obligation by accruing these expenses.

Until detailed expense reports justifying these costs are submitted and approved, the accrued amount is a recorded liability on the company’s financial records. Once validated, the subsequent reimbursement process not only fulfills the owed amounts to employees but also alleviates the liability, ensuring accurate financial reporting and fair compensation for business-related expenditures incurred by staff.

Conclusion

These insights on what are non-cash expenses in corporate travel? And ways to calculate them can help you manage your finances in a better way. Cashless expenses are an important component of financial reporting that reflect reductions in asset values or the recognition of expenses paid for in earlier periods. While they do not directly impact cash flow, monitoring cashless expenses provides valuable insight into a company’s performance and asset valuations. 

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