Final answer:
Non-cash items are expenses that directly affect the income statement but do not directly affect cash flow. Examples include depreciation, amortization, and changes in inventory.
Step-by-step explanation:
Non-cash items are expenses that directly affect the income statement but do not directly affect cash flow. In other words, non-cash items are costs or revenues that are recorded on the income statement but do not involve the actual exchange of cash. They are adjustments made to account for certain accounting principles or events.
Examples of non-cash items include depreciation, amortization, and changes in inventory. Depreciation is the allocation of the cost of long-term assets over their useful lives. Amortization is the allocation of the cost of intangible assets over their useful lives. Changes in inventory represent the value of inventory that is used or written off during a specific period.
Non-cash items are important for understanding a company's financial performance because they can affect its profitability even if there is no immediate cash inflow or outflow. They are reported on the income statement and may require adjustments when interpreting financial statements or comparing companies.