Podcast
Questions and Answers
A cash purchase of a new production machine is an expense.
A cash purchase of a new production machine is an expense.
False (B)
A ______ is a business expense unrelated to core operations.
A ______ is a business expense unrelated to core operations.
non-operating expense
What is a common example of a non-cash expense?
What is a common example of a non-cash expense?
- Salary payment
- Depreciation (correct)
- Purchase of inventory
- Rent payment
What are the two main components of operating costs?
What are the two main components of operating costs?
Match the following terms with their definitions:
Match the following terms with their definitions:
Flashcards
Outflow but no expense
Outflow but no expense
A cash outflow that doesn't decrease equity, like buying a machine.
Outflow and expense
Outflow and expense
Cash outflows that also count as expenses, such as salary payments.
Non-cash expenses
Non-cash expenses
Expenses that do not involve cash, like depreciation.
Non-operating expense
Non-operating expense
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Operating costs
Operating costs
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Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS)
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Imputed costs
Imputed costs
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Depreciation expense
Depreciation expense
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Study Notes
Cash Flows and Income Statements
- Outflow, but no expense: Purchasing a new machine is a cash outflow, but not an expense. Expenses reduce equity. The purchase exchanges cash for a non-current asset (machine).
- Outflow and expense: Most expenses are also cash outflows. Examples include salary payments. These transfer cash from company accounts to individuals.
- Non-cash expenses: These expenses do not involve actual cash transactions. Depreciation is a common example.
- Example of non-cash expense: A €1,000 asset with a five-year life, no resale value, and using straight line depreciation results in €200 depreciation expense each year.
- Non-operating expense: Expenses unrelated to core business operations. Example: If a company sells a building and it is not part of their core business, any loss is considered a non-operating expense.
- Operating costs: These include costs of goods sold (COGS), and other operating expenses like selling, general, and administrative (SG&A). COGS are directly linked to producing revenue, while SG&A are necessary for daily business operations.
- Imputed costs: Hidden costs not explicitly shown on financial statements. Example: If a company's cash only earns 2.50% interest, but alternative investments yield 3.00%, the imputed cost is the difference.
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