What is a non-cash expense? What is a deferred charge? Describe their similarities and the differences between them.

Non cash Charge/ Non cash Expense:

A non-cash charge is a write-down or accounting expense that does not involve a cash payment. They can represent meaningful changes to a company's financial standing, weighing on earnings without affecting short-term capital in any way. Depreciation, amortization, depletion, stock-based compensation, and asset impairments are common non-cash charges that reduce earnings but not cash flows.

Non-cash charges can be found in a company's income statement. Charges unaccompanied by a cash outflow must be recorded and are necessary for firms that use accrual basis accounting, a system used by companies to record their financial transactions, irrespective of whether a cash transfer has been made.

To put it simply, non-cash charges are expenses that do not involve any cash outflow. Non-cash charges are typically a result of expenditures beyond a corporation's control, such as depreciation or amortization.

In the case of non-cash charges, the expense is accounted for on the income statement, but no cash transaction takes place. For non-cash charges such as depreciation, the cash transaction involved in purchasing an asset is only recorded once in the year in which it was purchased.

As the product continues to depreciate, no further cash transactions are occurring, so the depreciation expenses are recorded as non-cash charges. In some cases, non-cash charges can also be referred to as non-cash expenditures or non-cash transactions.

Non-cash charges are important because they lower the overall earnings of a corporation. Since non-cash charges are still included as expenses, they will be accounted for as deductions in the corporation's net income but do not affect the overall cash flow.

In the case of non-cash charges such as depreciation, it can be difficult to predict how assets will depreciate or change over time, so they are recorded as estimates. Since the expense itself does not involve any cash, non-cash charges are a way of adding the expense back into the income statement.

Deferred charge:

A deferred charge is a long-term prepaid expense that is carried as an asset on a balance sheet until used/consumed. Thereafter, it is classified as an expense within the current accounting period. Deferred charges often stem from a business making payments for goods and services it has not yet received, such as prepaid insurance premiums or rent.

To receive a discount, some companies pay their rent in advance. This advanced payment is recorded as a deferred charge on the balance sheet and is considered to be an asset until fully expensed. Each month, the company recognizes a portion of the prepaid rent as an expense on the financial statements. Also, each month, another entry is made to move cash from the deferred charge on the balance sheet to the rental expense on the income statement.