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Non-cash transactions show that no cash flow in or flow out in the company, but these are incurred transactions.
Material transactions not resulting in movements of cash of the reporting entiry should be disclosed in the notes to the cash flow statement if disclosure is necessary for an understanding of the underlying transactions.
Consideration for transactions may be in a form other than cash. The purpose of a cash flow statement is to report cash flows. Non-cash transactions should not be reported in a cash flow statement. However, to obtain a full picture of the alterations in financial position caused by the transactions for the period, separate disclosure of materail non-cash transactions is also necessary.
Examples of non-cash transactions are:
- finance leases
- conversion of debt to equity.
Finance leases are accounted for by the lessee capitalising the fair value fo the related asset, or the present value of the minimum lease payments if lower. A liability and a corresponding asset are produced which do not reflect cash flows in the accounting period.
In this transactions, there’re no cash flow.
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