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

They're usable over two years.

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.

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

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.

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

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.

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.

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.

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

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

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.

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.

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.

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

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?

Redemption

let me give you that piece of terminology, it just means net asset value.

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

This is the interest rate you assume.

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

So what is the value per share?

And there's only 10 shares. So they're valuing the assets at 500,000. And this is of course the market value of the assets.

And just so you know, most corporate debt actually works that way.

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.

Do Low Interest Rates Ensure High Asset Prices?

I felt sick.