Let's say this is what we assume is how many cupcakes we sell.

My head I think implicitly made the numbers work out nicely.

This is just the money directly from the cupcakes.

So this kind of the cash income statement,

And I won't go into all of the details of an income statement, but any income statement you look at will have this operating profit line.

And we'll make it more complicated in the future

Periods per year

Periods

If you and I one sell individually what little we produce,

Now talking can be accompanied with aid or not with aid.

Spread Sheet Document...

Recalculate Document

So in this period, I made 350,000.

It's the top line of the income statement.

Before I go into price to earnings and all that, I want to connect the dots between the income statement and the balance sheet.

Anyway, going back to Price to Earnings, we calculated the

Let's see if we can use our example to understand the 3 types of income statements and hopefully understanding those income statements will also help us understand this example.

As we said, parentheses take our priority.

Compounded for 64 years.

No. I want a period on this sentence.

So this right here you could view as our income statement.

How much am I making from operating the business?

So wait a minute, you're getting 90 but you spent a total of 53 building the product and keeping the lights on and that leaves right in the middle how much profit you have.

How much are you worth at any one moment?

(Laughter)

She calculated the up front cost and the payback over time, and it's a net plus on so many levels for the local, national and global economy.

And obviously, a company that has no debt will have no interest expense, but in this case, we do.

So let's say it's 3 million.

I did my sums on rolls of butcher paper.

At present, that's not happening in New York City.

Give a better indication of what's actually going on in the buisness, and the way I did it in the first two videos, the first column over here

Read include patterns from

And about three years ago,

Okay, so I simplified this quite a bit.

So hopefully this gives you a idea of why accrual gives a better picture of what's happening in a buisness.

In the last video, I hopefully showed you that if I borrowed P dollars, and I borrow it for a year, and you were to charge me an interest rate of r, or you could say 10r , then at the end and we were to compound continuously.

When we did return on asset, we looked at the operating profit, because this is what our company generated before we paid the bank or Uncle Sam or anything like that.

And we'll focus on that a little bit later because that's a little bit more nuanced relative to the income statement.

And now we are left with our we're getting close to where we need to get to pre tax income.

And then in month 4 we actually earned the revenue.

And if you look at the order of operations, exponents take priority over multiplication.

And at least it'll give you a sense of how revenues, gross profit, operating profit, pre tax income and net income really are different.

THE MONETARY SYSTEM

One of the interesting thing about costs is that in the old days costs and revenue, the minute you started your company, your investors said oh, we know how to track all this.

Minus 500,000.