Why do depreciation and amortization not indicate a decrease in cash?

Depreciation and amortization are classified as non-cash expenses. This means that these expenses reduce reported earnings on the income statement without affecting cash flow directly. When a company records depreciation or amortization, it reflects the allocation of the cost of tangible or intangible assets over their useful lives. Although these expenses lower the profit shown on financial statements, no actual cash leaves the business at the time the expense is recorded. Instead, cash may have already been spent when the asset was purchased, making these charges an accounting mechanism to match expenses with revenues over time, rather than an outflow of cash at the time of reporting. Understanding this concept is crucial for analyzing a company's financial health, as it highlights the difference between accounting principles and actual cash flow management.