What type of expense is depreciation classified as?

Depreciation is classified as a non-cash expense because it represents the allocation of the cost of tangible assets over their useful lives rather than an actual cash transaction occurring during the accounting period. When an asset is purchased, the cash outflow occurs at that time, but depreciation subsequently spreads the cost of that asset over several periods in order to match the expense with the revenue generated from its use.

This non-cash nature is crucial for understanding a company's financial performance, as it allows analysts to see how assets are being utilized while still maintaining a clear picture of cash flows. It does not directly impact cash flow in the period in which it is recorded, unlike other expenses that require a real cash outflow.

In contrast, cash expenses involve actual cash payments made during the period, while operating expenses refer to the costs associated with running a business's core operations. Fixed expenses are consistent costs that do not change with the level of production or sales, like rent and salaries, but depreciation is a specific accounting method for capital assets' cost allocation.