So I'll just write down the number first.

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

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

So therefore, I put it down there.

And then their SG amp A is the same.

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

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.

Our profit, once again, is 30,000.

So I used half of it in year one.

No, we didn't.

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 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.

The fact that this machine right here that cost 50,000 is used for in this example, in the depreciation video, it was usable for two years.

Nothing fancy.

And let me give you some examples.

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

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.

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

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

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?

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.

I can rent a 1 million house for about 3,000.

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.

It was a huge success.

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.

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

The annual Spring Scream is in Hengchun.

And there's all sorts of intangible assets that you might amortize.

Gasoline consumption in the U.S. probably peaked in 2007 and is declining.

This is the interest rate you assume.

It just makes economic sense. Right now, solar paybacks are between 30 and 50 years.

Our short term goal for this is to be half the price of solar cells and our longer term goal is to be less than a five year payback.

If we start next year, it is six percent per year.

Redemption

At this point in time, your patent is arguably only worth 1,000, because you paid 4,000 for four years, and now you only have a year left.