They're usable over two years.

So I'll just write down the number first.

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 therefore, I put it down 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.

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

No, we didn't.

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

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.

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

Our profit, once again, is 30,000.

So I used half of it in year one.

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

Nothing fancy.

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

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

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

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

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.

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.

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

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.

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

Redemption

The price of this book has been reduced by half.

The value of this book has been halved.

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.

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.

We need flat land, we need 300 days of sunlight, and we need to be near a gas pipe.

When they assign a 120,000 market cap there...

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

This is all a review of the depreciation video.

My new balance you will look like this 150 and 150.

So let's call that market equity.

Depreciation is tangible.

lifespan of this machine really is four years, then it's time to go buy another machine and start doing this all over again.