And amortizing really just means spreading out the cost of this asset, just like depreciation was spreading out the cost of a physical asset.

So I'll just write down the number first.

Really, in my mind, it's very similar to depreciation.

So therefore, I put it down there.

And then their SG amp A is the same.

To figure out the cash from operations from actually how much cash the operations are producing.

So no cash went out of the door.

They're usable over two years.

If you divide 50,000 by 4, it's 12,500.

Our profit, once again, is 30,000.

So I used half of it in year one.

And then the other 250,000 essentially went to an expense called depreciation, which is right there.

Well, you know depreciation, man.

And then instead of having an equipment expense, instead of having that expense, they'll have an equipment depreciation expense.

amortization. Amortization is to spread out a non tangible cost over a period of time.

So, for example, in this one, at the beginning of the period, before the 2007 income statement, the asset was worth 50,000.

And this is just an arguably long winded way of saying that the way you account for this is you spread out the cost over time, over its useful life, and this spreading out is called the depreciation of an asset.

And let's say we do a straight line depreciation, which means we essentially depreciate the asset evenly over its lifespan.

No, we didn't.

So 20,000 over 3 years is the life of that truck.

And then at the end of 2010, it'll say the machine is worth nothing.

Nothing fancy.

In the private sector, when you squeeze that kind of additional value out of a fixed cost investment, it's called a billion dollar company.

So it would be patent amortization.

So for example, depreciation, this was factory equipment, and it gets old as I use it, so I spread out its cost.

If you have a 10 year loan, you'd put 10 here.

Maintenance, same thing.

Our starting cash was 50,000, we had 50,000 from operations, now our ending cash is 100,000.

Because remember, income statements are just telling you how do you get from one balance sheet to another.

And I'm running out of time in this video, and I'll cover it in the next, but you might have also heard of the word

Accounts Receivable, that they're not changing over the course of the year.

And then we have depreciation, and we want to think a little bit in this video, what does the depreciation do to the cash flow statement?

Another type of sale is an actual asset sale, direct sale.

Depreciation is tangible.

That's just the gasoline cost.

So the way you'd think about this is instead of having factory retooling, you could say factory tool.

Ancillary would be number 2 referred revenue.

And we'll talk later about depreciation and amortization and how we might change what these values are, but a very simple way is, if you went out and bought 10 million worth of stuff, you'd write on your books, I have a 10 million asset.

So if my operating profit is zero, we know my overhead.

So instead of doing that, what you do is, at the beginning of the period you say, we have acquired a patent, an asset, that is worth 4,000, And then every year over the life of the patent, we'd amortize a fourth of it since it has a four year life.

Or would it increase the disparity between rich and poor?

Amortization is the exact same thing, but it deals with intangible assets.

But there are two types of prices.

I could actually price on specific customer segments or on features I know they need.

Then auctions like eBay are another example of dynamic pricing.