In accounting and banking, a noncash item can have two different meanings. Bankers use it to discuss negotiable instruments not yet credited to customer accounts, while accountants declare noncash items on statements to provide information about profits and losses. The intended meaning is usually clear from the context where it is used; on an accounting declaration, for example, the noncash item is something like appreciation value on an asset, not a check that hasn’t cleared yet.
Banks routinely process negotiable instruments like checks on behalf of their customers. When a check is deposited, it is initially considered a noncash item. While it is present in the customer’s account and can be added to the balance, it has not yet cleared; the cash is not actually there, and won’t be until the bank has finished processing. This can take several business days, depending on the size of the check and where it was written.
Customers can ask banks for information on noncash items in their accounts to make sure they are being processed, and to get information about available funds. Banks typically hold back some or all of the funds until they are satisfied that a check has cleared, in order to avoid an overdraft. If a noncash item takes an unusually long time to clear, this may be a sign of a problem, like improper documentation, suspected fraud, or other issues. Staff at the bank should be able to provide information about the delay to help the customer resolve the situation.
For accountants, a method for accurately declaring appreciation, amortization, and other benefits is necessary. These factors can’t be directly declared as cash earnings because they don’t result in a net flow of cash, so they are covered as noncash items in an accounting statements. This can require some practice of judgment on the part of the accountant. For example, appreciation on an asset like real estate is estimated, and it may be overstated to make a company’s finances look better than they are.
People reviewing a statement can identify a noncash item and may find information about how its value was computed. This helps them determine the validity of the information so they can decide how they want to use it. Investors, for instance, may be concerned about a company that appears to be inflating appreciation on assets, because this could be an indicator that it is attempting to cover up losses somewhere else.
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.