The expenses like depreciation and amortization do not involve any cash outflow and hence are referred to as non-cash expenditure. However, they are reported as expenses in the income statement. They usually represent the decrease in the value of a tangible(ex. machinery) or intangible(ex. license) asset, over a period of time.
Depreciation represents the decrease in the value of the asset over a period of time. This value is computed on an yearly basis and projected as expense in the income statement for a given accounting period, till the asset is completely deprecated.
Similarly, when a payment is paid towards amortization, for instance towards procuring a license to perform a business or partial loan repayment. The total cost of the renewal/payment is computed and distributed over the period for which the license expires or loan is completely paid. This partial expense is then projected as expense in the income statement.
