The major noncash expense is depreciation. If a firm pays $20,000 cash for an asset, the actual cash outflow is $20,000 at the time of purchases. However, firms may depreciate assets over time, allocating a potion of the cost to each year.

The depreciation deduction is simply another application of the matching principle in accounting. The revenues associated with an asset would generally occur over some length of time. So the accountant seeks to match the expense of purchasing the asset with the benefits produced from owning it.