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

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 it would be patent amortization.

They're usable over two years.

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

So I'll just write down the number first.

So therefore, I put it down there.

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

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

Well, you know depreciation, man.

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.

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

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

No, we didn't.

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

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

So I used half of it in year one.

Obviously , a machine you can't do all of those things to it, but you can at least touch it and possibly smell and taste it.

Our profit, once again, is 30,000.

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

Maintenance, same thing.

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.

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

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.

I guess you can't quantify charisma and good looks.

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

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

Depreciation is tangible.

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

Nothing fancy.

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.

But there are two types of prices.

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.

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

If you've watched the video on depreciation and amortization, this might even include the depreciation on some of the physical assets they've bought, or maybe the amortization on the rights to the name Super Pizzeria.

And if you look at the species level, you saw about fish.

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

There's no haggling.

Then auctions like eBay are another example of dynamic pricing.

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.