Non-cash Transactions Explained With Example

Non-cash transactions- the term in itself is quite indicative that it is the opposite of cash transaction. In business there are numerous number of transactions. In which there may not be a movement in terms of cash or May the movement takes place in later time or no movement at all. So, to give a more accurate picture to their current financial condition, non-cash transaction effects are also added.

1. Purchase of asset by issuing stock convertible bonds. In other words, instead of converting bonds into cash and then buying assets. A company buys an asset through issuing bonds. For example, purchase of land and building through issuance of 250,000 shares of common bond.
2. Exchange of one property for other property: In this type, instead of selling a property and then purchasing a property. The company exchange its property with another property. For instance, Exchange land in California, for land in Sydney.
3. Depreciation: Depreciation is recorded on a fixed asset to calculate the reduction in the value of asset over a time. Depreciation is considered as non-cash expense. When a company buys a fixed asset it is recorded in the company’s balance sheet. Every year the value of fixed asset is reduced because it is being used. But this expense is non-cash because company does not pay for it. For instance, a company bought computer for 100,000, its useful life is 3 years and it will be depreciated by 33%. Company doesn’t has to pay for this expense, rather it reduces the value of asset.