{"id":22367,"date":"2023-12-14T11:34:30","date_gmt":"2023-12-14T11:34:30","guid":{"rendered":"https:\/\/www.itilite.com\/?p=22367"},"modified":"2024-07-30T13:19:46","modified_gmt":"2024-07-30T13:19:46","slug":"what-are-non-cash-expenses","status":"publish","type":"post","link":"https:\/\/www.itilite.com\/in\/blog\/what-are-non-cash-expenses\/","title":{"rendered":"Understanding Non Cash Expenses in Business Travel"},"content":{"rendered":"
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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 non cash expenses provides valuable insight into a company\u2019s performance and asset valuations. <\/p>\n\n\n\n

Understanding and dissecting these cashless expenses in corporate travel is invaluable for a holistic assessment of a company\u2019s financial performance. This blog provides a detailed analysis of types of cashless expenses in corporate travel.<\/p>\n\n\n

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What are Non-cash Expenses?<\/h2>\n\n\n\n

Cashless expenses reflect a decrease in the value or use of assets over time. Unlike cash expenses, no cash expenses don\u2019t require a payment or cash outlay when people incur them. However, cashless costs can still impact a company\u2019s profitability and cash flow.  <\/p>\n\n\n\n

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. <\/p>\n\n\n\n

Cashless expenses may be excluded from some budget reports, so travel managers<\/a> must be aware of their impact separately. Having visibility into cash and no-cash expenses gives travel managers a complete picture of their program\u2019s performance. <\/p>\n\n\n\n

6 Types of Non-Cash Expenses<\/h2>\n\n\n\n

Here are the 6 types of cashless expenses:<\/p>\n\n\n\n

1. Depreciation <\/h3>\n\n\n\n

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 one of the common examples of non cash expenses that companies record to allocate the cost of an asset over its useful life.<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

2. Bad Debt Expense <\/h3>\n\n\n\n

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. <\/p>\n\n\n\n

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 recognised. Recording bad debt involves removing the receivables from the books and establishing an allowance for doubtful accounts.<\/p>\n\n\n\n

How to Calculate Cashless Expenses (Bad Debt Expenses)<\/strong><\/p>\n\n\n\n

When estimating bad debt for a period, companies analyse 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.<\/p>\n\n\n\n

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

Nonpayment losses directly linked to corporate travel expenses can represent notable non cash expenses. Careful analysis of uncollectible receivables and trends among business travelers enables business travel management<\/a> teams to anticipate bad debt, budget accordingly, and integrate bad debt planning into financial reporting processes.<\/p>\n\n\n\n

3. Deferred Taxes<\/h3>\n\n\n\n

Deferred tax liability is a type of cashless expense companies incur related to taxes. Here\u2019s an overview of how deferred taxes work and how to calculate them for business travel expenses<\/a>:<\/p>\n\n\n\n

Deferred tax liability arises when a company\u2019s taxable income exceeds its accounting income. It creates a timing difference between when the expenses are recognised for accounting purposes versus tax purposes.<\/p>\n\n\n\n

For example, travel expenses are immediately deductible for tax purposes. However, some travel costs may need to be capitalised and amortised over time for accounting purposes. The timing difference creates a deferred tax liability. The amortisation of intangible assets, such as patents, is one of the typical examples of non cash expenses.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

How to Calculate Cashless Expenses (Deferred Taxes)?<\/strong><\/p>\n\n\n\n

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.<\/p>\n\n\n\n

The deferred liability will be reduced as travel expenses are amortised for accounting in future years. The accounting and tax travel expenses have equalised when the liability reaches zero.<\/p>\n\n\n\n

4. No Cash Interest Expense<\/h3>\n\n\n\n

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. <\/p>\n\n\n\n

Some examples of non cash expenses interest related to corporate travel include:<\/p>\n\n\n\n