WEBVTT 1 00:00:00.600 --> 00:00:04.300 In January, I introduce the concept of current versus 2 00:00:03.800 --> 00:00:07.400 exceptional profit or loss. 3 00:00:06.800 --> 00:00:10.100 It was a loss. It was about depreciating the inventories. 4 00:00:10.500 --> 00:00:14.100 But it was also quite important to understand the relationship between 5 00:00:13.700 --> 00:00:17.600 accounting and management. It's accounting 6 00:00:16.800 --> 00:00:20.400 for business operations. Then how 7 00:00:20.100 --> 00:00:23.300 you account for for example funds from 8 00:00:23.200 --> 00:00:26.700 operations has to be really consistent with how 9 00:00:26.200 --> 00:00:30.700 we manage the performance of business managers. Now 10 00:00:30.000 --> 00:00:33.500 February is a different story in February. We 11 00:00:33.300 --> 00:00:37.500 start launching some studies because we want to insource and 12 00:00:37.200 --> 00:00:41.100 manufacturing of the puzzles. This is about controlling 13 00:00:40.400 --> 00:00:43.800 production. You understand that we had to buy 14 00:00:43.400 --> 00:00:46.800 a number of units because a supplier 15 00:00:46.400 --> 00:00:49.800 had a constraint in terms of capacity. We want 16 00:00:49.500 --> 00:00:53.300 to manage our production process and 17 00:00:52.600 --> 00:00:56.300 we also want to be able to generate economies of scale 18 00:00:55.700 --> 00:00:59.100 consisting in that case in in 19 00:00:58.800 --> 00:01:02.500 sourcing the margin which is generated by the 20 00:01:01.800 --> 00:01:05.400 supplier. You all know that very difficult 21 00:01:05.000 --> 00:01:08.500 question in manufacturing is a 22 00:01:08.000 --> 00:01:10.000 decision make or buy 23 00:01:10.700 --> 00:01:14.200 Definitely we want to move from by to make 24 00:01:13.700 --> 00:01:17.200 in order to be able to make to manufacture 25 00:01:16.700 --> 00:01:20.000 to produce. We need to buy a machine, but we 26 00:01:19.700 --> 00:01:23.500 are not going to buy a machine before we run some 27 00:01:22.900 --> 00:01:26.300 preliminary studies. This is why I am 28 00:01:25.900 --> 00:01:29.500 going to hire a person in charge of engineering and 29 00:01:29.200 --> 00:01:33.100 Technical feasibility studies and R&D manager 30 00:01:32.800 --> 00:01:35.100 in order to be able to do the job. 31 00:01:36.000 --> 00:01:39.500 This will give me the opportunity to make you understand the 32 00:01:39.000 --> 00:01:42.500 process for creating the financial statements the 33 00:01:42.200 --> 00:01:45.400 accounting statements. Of course, we'll do 34 00:01:45.200 --> 00:01:48.600 it gradually step by step and for 35 00:01:48.200 --> 00:01:51.800 each and every step I will show you the principles for 36 00:01:51.500 --> 00:01:55.600 the calculation. I will show you how to make the calculations 37 00:01:54.500 --> 00:01:57.500 the results and we are going to 38 00:01:57.500 --> 00:01:59.200 discuss the results. 39 00:02:00.600 --> 00:02:04.000 The accounting statements of February are going to be built together so 40 00:02:03.600 --> 00:02:07.200 that you are able to do it in an autonomous way 41 00:02:06.900 --> 00:02:10.500 in March. You will build the statements by yourself. 42 00:02:11.300 --> 00:02:15.400 The first key information you need is about sales about revenues. 43 00:02:16.000 --> 00:02:20.000 Then it's about volume number of units at which price 44 00:02:19.400 --> 00:02:22.800 do we sell units? And what are the terms of payment 45 00:02:22.500 --> 00:02:24.900 you remember accounts receivable? 46 00:02:25.600 --> 00:02:29.300 But it is also about purchases against about volume 47 00:02:28.900 --> 00:02:32.400 against about price and again, it's about terms 48 00:02:32.000 --> 00:02:34.600 of payment for the suppliers. 49 00:02:35.600 --> 00:02:39.400 Combining these two information. We can calculate the 50 00:02:39.000 --> 00:02:42.800 gross margin. Then we have to deduct from the gross. Margin 51 00:02:42.500 --> 00:02:46.000 the indirect cost Administration sales and 52 00:02:45.600 --> 00:02:48.700 now technical costs R&D. 53 00:02:49.400 --> 00:02:53.700 We'll have to figure out if there will be some potential exceptional events. 54 00:02:53.100 --> 00:02:56.400 We need some tax parameters and we 55 00:02:56.300 --> 00:02:58.100 need a dividend policy. 56 00:02:59.200 --> 00:03:03.200 Now, let's go to the figure sales. We anticipate we 57 00:03:02.800 --> 00:03:06.100 are going to sell 650 units 58 00:03:05.800 --> 00:03:09.600 in b2c and 600 units B2B. 59 00:03:08.800 --> 00:03:12.500 This is about sales and we already know 60 00:03:12.100 --> 00:03:15.500 the terms of payment what about purchases? We are 61 00:03:15.500 --> 00:03:18.800 going to buy 1,500 units as 62 00:03:18.500 --> 00:03:22.400 a same price with the same terms of payment indirect cost. 63 00:03:22.300 --> 00:03:26.600 There will be the hiring of an engineer R&D 64 00:03:25.300 --> 00:03:28.600 and we'll see at which price we 65 00:03:28.300 --> 00:03:30.500 are going to pay this person. 66 00:03:31.500 --> 00:03:35.000 We don't anticipate any exceptional event to make 67 00:03:34.800 --> 00:03:38.200 it simple profits are supposed to be taxed at 68 00:03:37.900 --> 00:03:41.400 the rate of 20% and we anticipate so 69 00:03:40.900 --> 00:03:44.400 far that we are going to retain 100% of 70 00:03:44.100 --> 00:03:46.000 the net earnings. 71 00:03:46.800 --> 00:03:50.100 Now there are three steps. The first one is about building the 72 00:03:49.900 --> 00:03:54.200 p&l. The second one is about cash in cash 73 00:03:53.600 --> 00:03:57.200 Outlets change in cash position and we 74 00:03:57.100 --> 00:04:00.700 complete the picture with the end of the year and of 75 00:04:00.500 --> 00:04:02.100 the period balance it. 76 00:04:02.700 --> 00:04:05.800 Let's start with the p&l step 1. It's about sales. 77 00:04:06.500 --> 00:04:10.300 You remember we're supposed to sell 650 units. 78 00:04:11.000 --> 00:04:15.700 At 30 dollars per unit. We are going to consume 650 79 00:04:14.200 --> 00:04:17.800 units which we're purchase at 80 00:04:17.500 --> 00:04:21.400 $20 per unit. This gives us the revenues 81 00:04:20.600 --> 00:04:24.400 and the gross margin for b2c. Same story for B2B 82 00:04:23.800 --> 00:04:27.500 600 units sold 25 dollars 83 00:04:27.100 --> 00:04:30.600 purchased 20 dollars. Then the 84 00:04:30.200 --> 00:04:34.300 sales figure is 650 times 30 plus 600 85 00:04:33.500 --> 00:04:36.800 times 25 and the total is 86 00:04:36.700 --> 00:04:40.400 34,000 and 500. No big 87 00:04:40.100 --> 00:04:40.600 deal. 88 00:04:41.500 --> 00:04:45.300 Now the second step is about inventories and cost of 89 00:04:45.100 --> 00:04:47.800 sales. It's still in a Pianist story. 90 00:04:48.800 --> 00:04:52.500 You remember that at the beginning of the period we have 200 units 91 00:04:52.100 --> 00:04:56.700 in infataries. We decide to purchase 1,500 92 00:04:55.200 --> 00:04:58.700 units how many units are 93 00:04:58.500 --> 00:05:02.700 available for sale 1700 but 94 00:05:02.100 --> 00:05:06.000 we anticipate that we are going to consume out 95 00:05:05.300 --> 00:05:08.700 1,250 units 96 00:05:08.400 --> 00:05:13.100 all in all at the end. There should be 450 units 97 00:05:12.900 --> 00:05:17.000 in the inventory. Now, the second step in accounting for inventories is 98 00:05:16.800 --> 00:05:19.000 to transform units into values. 99 00:05:19.800 --> 00:05:24.100 beginning inventory 200 times 20 purchases 100 00:05:22.900 --> 00:05:26.500 1,500 times 101 00:05:26.000 --> 00:05:26.900 20 102 00:05:27.600 --> 00:05:31.000 But what is very interesting is you remember we 103 00:05:30.700 --> 00:05:34.200 consume 1,250 units because 104 00:05:34.000 --> 00:05:37.200 they are sold and the cost of 105 00:05:37.200 --> 00:05:40.700 good Souls the cost of sales is now $20 106 00:05:40.700 --> 00:05:44.100 multiplied by 1,250. We 107 00:05:43.800 --> 00:05:47.100 have the cost of all these Goods which were sold 108 00:05:46.800 --> 00:05:49.900 to the customers inventory at the end 109 00:05:49.800 --> 00:05:53.100 450 times 20 we have 110 00:05:52.900 --> 00:05:56.400 now the revenues and we have the cost of sales so 111 00:05:55.900 --> 00:05:59.700 we can build the gross margin we can build and calculate the 112 00:05:59.400 --> 00:06:03.400 gross profit. It is revenues sales Minus 113 00:06:02.600 --> 00:06:06.400 cost of sales. The growth 114 00:06:05.900 --> 00:06:09.100 margin is 9,500. Now we have 115 00:06:08.900 --> 00:06:12.900 to deduct the indirect cost administrative expense 116 00:06:12.500 --> 00:06:15.900 myself selling expense so sales person 117 00:06:15.700 --> 00:06:20.500 and now we hire an engineer for 1,500 the 118 00:06:20.200 --> 00:06:23.700 current operating profit for the period is growth. 119 00:06:23.200 --> 00:06:27.200 Margin minus indirect cost. It's 4, 120 00:06:27.600 --> 00:06:30.900 Hundred this is the end of step 3 and we are still in a 121 00:06:30.700 --> 00:06:34.100 P&M the next step step 4 still in the p&l 122 00:06:33.800 --> 00:06:38.100 is to account for potential exceptional items. 123 00:06:38.500 --> 00:06:41.900 Here we have no exceptional laws on inventories on 124 00:06:41.800 --> 00:06:44.500 any kind and the figure is zero. 125 00:06:45.200 --> 00:06:48.900 Then step 5 we can complete the 126 00:06:48.400 --> 00:06:52.200 income statement. We have now earnings before 127 00:06:52.000 --> 00:06:55.400 tax and after exceptional events, which are 128 00:06:55.000 --> 00:06:59.000 zero which is 4,000 and 129 00:06:58.100 --> 00:07:01.900 700 the income taxis 20% of 130 00:07:01.800 --> 00:07:05.500 that 940 near earnings earnings 131 00:07:04.900 --> 00:07:09.200 after taxes are bottom line 3000 700 132 00:07:08.200 --> 00:07:11.800 and 60 income allocation 133 00:07:11.500 --> 00:07:15.200 is absolutely straightforward because we consider that 100% 134 00:07:14.500 --> 00:07:18.100 of the earnings generator During the period are going 135 00:07:17.900 --> 00:07:21.600 to be retained. We are going to declare maybe a 136 00:07:21.100 --> 00:07:24.500 dividend at the end of the year, but so far absolutely no 137 00:07:24.200 --> 00:07:28.300 dividend retain earnings equal net earnings 138 00:07:28.000 --> 00:07:32.100 Now we move from p&l to cash the 139 00:07:31.400 --> 00:07:36.200 second film and you remember that revenues sales 140 00:07:35.200 --> 00:07:38.900 is not cash from sales. The accounts 141 00:07:38.700 --> 00:07:42.300 receivable is going to tell us a story. What is your accounts 142 00:07:41.900 --> 00:07:44.500 receivable at the beginning of the period? 143 00:07:45.200 --> 00:07:47.100 Is the end of the prior months? 144 00:07:47.800 --> 00:07:51.300 the B2B cells in generate generated 145 00:07:51.000 --> 00:07:54.600 an accounts receivable, which is 12,500 supposed 146 00:07:54.100 --> 00:07:55.900 to be paid this period 147 00:07:56.400 --> 00:08:00.100 We generate sales of 34,500, but 148 00:07:59.400 --> 00:08:02.600 we know that the B2B part of it is 149 00:08:02.400 --> 00:08:03.800 going to be paired in March. 150 00:08:04.400 --> 00:08:08.000 So what's going to happen accounts receivable at the end of the period 151 00:08:07.500 --> 00:08:10.700 is 15,000. We are going to 152 00:08:10.600 --> 00:08:13.800 collect the B2B sales of generally and 153 00:08:13.700 --> 00:08:17.600 the b2c cells of February cash 154 00:08:16.700 --> 00:08:20.100 inflow 32,000, which 155 00:08:19.700 --> 00:08:23.000 is again a little bit different from the sales 156 00:08:22.700 --> 00:08:23.400 figure. 157 00:08:24.600 --> 00:08:28.600 That was about cash from sales now cash to 158 00:08:27.800 --> 00:08:30.900 pay the suppliers and of the 159 00:08:30.900 --> 00:08:35.200 prior months a chance payable. It was 8,000 50% 160 00:08:34.300 --> 00:08:37.800 of the purchases of January. Now we 161 00:08:37.500 --> 00:08:40.600 purchase for $30,000 What is due 162 00:08:40.500 --> 00:08:44.700 to the suppliers is 38,000 15% 163 00:08:43.500 --> 00:08:46.900 of the purchases of the months are 164 00:08:46.500 --> 00:08:51.300 going to be paid in March, which is 15,000. So 165 00:08:50.700 --> 00:08:55.100 in February, we pay the 8,000 prior 166 00:08:54.300 --> 00:08:57.800 months plus 15,000 this month 167 00:08:57.400 --> 00:09:01.500 50% of the purchases. It is 23,000. So 168 00:09:01.200 --> 00:09:04.800 the cash outlayers as far as players are concerned is 169 00:09:04.400 --> 00:09:06.400 23,000. 170 00:09:07.300 --> 00:09:11.500 Other cash outlays Administration R&D 171 00:09:10.300 --> 00:09:14.100 and sales supposed to be paid the mountains. 172 00:09:13.500 --> 00:09:14.800 They are accounted. 173 00:09:15.300 --> 00:09:18.900 Taxes we are going to account for tax but we pay 174 00:09:18.300 --> 00:09:21.900 later dividends so far we decided 175 00:09:21.600 --> 00:09:24.900 not to pay anything. There is 176 00:09:24.600 --> 00:09:28.100 no past operating liability. We don't have anything to 177 00:09:27.900 --> 00:09:31.600 pay from prior months adjustments or any kind. So 178 00:09:31.000 --> 00:09:33.700 basically the figure is 0 179 00:09:34.500 --> 00:09:38.200 Now total cash Outlets when we mix a sum of what is paired 180 00:09:37.800 --> 00:09:41.300 to the suppliers and the payment of indirect costs 181 00:09:40.800 --> 00:09:43.800 is 27,800. 182 00:09:44.400 --> 00:09:47.900 Then that change in cash is Cash in minus Cash 183 00:09:47.700 --> 00:09:51.200 Out is $4,200. We add that 184 00:09:50.900 --> 00:09:55.100 to the cache at the beginning of the period 10,420 and 185 00:09:54.600 --> 00:09:57.900 at the end of the day cash and of February 186 00:09:57.600 --> 00:10:02.000 is 14,620. This 187 00:10:01.200 --> 00:10:04.800 nine step was the last step for changing 188 00:10:04.200 --> 00:10:08.300 cash. Now, we can move to the balancy balance. 189 00:10:07.200 --> 00:10:10.900 It assets inventories value 190 00:10:10.200 --> 00:10:15.000 at the end. You remember that we have 450 191 00:10:13.400 --> 00:10:16.800 units 20 dollars each 192 00:10:16.600 --> 00:10:19.900 9,000 accounts receivable at the 193 00:10:19.800 --> 00:10:23.100 end of the period. It's a B2B sales of 194 00:10:23.000 --> 00:10:26.800 the months of February 15,000 changing cash 195 00:10:26.300 --> 00:10:31.200 provided the figure which is now 14,620. We 196 00:10:30.900 --> 00:10:36.100 have the total asset which is 38,620. Now 197 00:10:35.400 --> 00:10:39.100 we can move to the other part of the balance sheet, which 198 00:10:38.900 --> 00:10:42.200 is equity and liabilities. There was no equity issue. So 199 00:10:42.000 --> 00:10:43.700 the $10,000 of capital 200 00:10:44.400 --> 00:10:47.700 not change at all. What about the retained earnings? We 201 00:10:47.500 --> 00:10:51.200 had some retain earnings at the end of January and 202 00:10:50.500 --> 00:10:54.300 we decided to retain 100% of 203 00:10:53.900 --> 00:10:57.000 the earnings of February you makes a 204 00:10:56.900 --> 00:11:00.700 sum and it gives you 12,640 total 205 00:11:00.300 --> 00:11:04.200 shareholders equity 22,640. 206 00:11:04.700 --> 00:11:08.400 There is no dividend payable because so far 100% of 207 00:11:08.200 --> 00:11:11.200 the net earnings are retained be it for 208 00:11:11.200 --> 00:11:14.500 January and February a chance payable 209 00:11:14.200 --> 00:11:17.800 end of the month. It's 50% of the purchases of 210 00:11:17.700 --> 00:11:20.900 the month 15,000 and income tax 211 00:11:20.700 --> 00:11:24.000 payable you remember that we accumulated a little 212 00:11:24.000 --> 00:11:27.900 bit of income tax payable at the end of January. 213 00:11:27.000 --> 00:11:30.400 There was no tax PED in 214 00:11:30.200 --> 00:11:33.500 February and we have generated some income tax 215 00:11:33.300 --> 00:11:36.600 in February as a consequence of the profit before tax. We 216 00:11:36.300 --> 00:11:40.200 have generated income tax payable 900 and 217 00:11:39.800 --> 00:11:45.300 80 total equity and liabilities 38,620 218 00:11:43.000 --> 00:11:46.200 and the 219 00:11:46.000 --> 00:11:50.400 12th step is wow, great mechanical accounting 220 00:11:49.500 --> 00:11:52.800 balance between assets on the one 221 00:11:52.600 --> 00:11:56.000 side equity and liability is on the other side and 222 00:11:55.600 --> 00:11:58.700 it is always the case you remember what I 223 00:11:58.600 --> 00:12:02.300 already said, even if you make a mistake the balance 224 00:12:02.000 --> 00:12:03.700 it will balance. 225 00:12:04.700 --> 00:12:08.100 About the financial analysis in February. It's going to be about 226 00:12:07.700 --> 00:12:11.500 sales and revenues and profit and cash again. 227 00:12:11.000 --> 00:12:15.100 So sales are up again why or 228 00:12:14.400 --> 00:12:18.600 because we have observed as a kind of seasonality in 229 00:12:18.500 --> 00:12:19.100 this business. 230 00:12:19.800 --> 00:12:23.600 And the sales figure looks quite promising the gross 231 00:12:23.000 --> 00:12:26.600 margin is reasonably stable you remember 232 00:12:26.300 --> 00:12:29.600 that? It is a combination of b2c and 233 00:12:29.300 --> 00:12:32.300 B2B which makes a gross margin rate by the 234 00:12:32.300 --> 00:12:35.900 way more interesting is about the operating margin. 235 00:12:36.400 --> 00:12:39.700 You remember that in January the operating margin as a 236 00:12:39.400 --> 00:12:42.900 percentage to revenue walls down because of these economies 237 00:12:42.500 --> 00:12:46.000 of scale the revenues we're down but in February 238 00:12:45.500 --> 00:12:49.200 the revenues are up so we would anticipate at 239 00:12:49.000 --> 00:12:52.700 first and operating margin percentage to revenue which 240 00:12:52.300 --> 00:12:55.700 is up and it's down why because 241 00:12:55.300 --> 00:12:58.600 there's a combination of economies of scale which makes 242 00:12:58.300 --> 00:13:01.700 it go up but there is an investment in 243 00:13:01.400 --> 00:13:04.900 research and development. So we don't generate 244 00:13:04.400 --> 00:13:07.600 economies of scale because there is an increase in a 245 00:13:07.400 --> 00:13:10.600 fixed cause by an amount which is a salary we pair to 246 00:13:10.400 --> 00:13:14.100 this person who was hired as a technical engineer. 247 00:13:15.100 --> 00:13:19.000 And that's very important because R&D is 248 00:13:18.500 --> 00:13:22.100 spent today, but to prepare the 249 00:13:21.500 --> 00:13:24.800 revenues to prepare the growth to prepare 250 00:13:24.600 --> 00:13:27.800 the investment. So we anticipate on one hand 251 00:13:27.700 --> 00:13:31.500 that we are going to generate more revenues tomorrow returns tomorrow, 252 00:13:31.200 --> 00:13:34.600 but we spend today there's a time lag 253 00:13:34.200 --> 00:13:37.400 between the moment you spend and the moment you earn this is 254 00:13:37.300 --> 00:13:39.200 what his name an investment. 255 00:13:40.100 --> 00:13:43.900 And that's very important to understand that the investment is 256 00:13:43.200 --> 00:13:47.200 a cost in the p&l. This 257 00:13:46.600 --> 00:13:50.000 was about sales and profit now, let's 258 00:13:49.800 --> 00:13:50.800 have a look at Cash. 259 00:13:51.600 --> 00:13:54.700 So we analyze the revenues and we analyze the 260 00:13:54.600 --> 00:13:57.800 cost expense and profit now, let's 261 00:13:57.700 --> 00:14:01.300 go to cash and let's go to funds from operations and 262 00:14:00.900 --> 00:14:04.100 the explanation of the change in the cash position of the 263 00:14:04.000 --> 00:14:07.400 company. There was a current change in 264 00:14:07.200 --> 00:14:10.700 the operating working capital requirements. There was 265 00:14:10.600 --> 00:14:14.300 no exceptional item, but you remember you have to calculate the current 266 00:14:13.800 --> 00:14:14.700 change. 267 00:14:15.600 --> 00:14:19.200 It is 500 plus which means at 500 dollars 268 00:14:19.000 --> 00:14:23.100 where consumed by the operating cycle potentially the 269 00:14:22.800 --> 00:14:26.400 operating profit current operating profit again 270 00:14:25.800 --> 00:14:29.100 was generating potential cash of 271 00:14:28.900 --> 00:14:32.100 4,700, but it's 272 00:14:31.900 --> 00:14:35.200 only 4,200 which you have in your pocket 273 00:14:34.900 --> 00:14:38.700 as a consequence of the increase in the operating working capital 274 00:14:38.200 --> 00:14:39.300 requirement. 275 00:14:39.900 --> 00:14:43.400 No tax payment. It's delayed. No dividend 276 00:14:43.100 --> 00:14:46.400 payment because we have decided so far not to 277 00:14:46.200 --> 00:14:49.600 pay any dividend and declare any dividend. So 278 00:14:49.400 --> 00:14:52.400 the change in cash is exactly the same as a 279 00:14:52.400 --> 00:14:55.100 current fonts from operations. 280 00:14:55.800 --> 00:14:59.800 What did we learn from February we observed again 281 00:14:59.100 --> 00:15:03.600 that the balance sheet was mechanically balancing 282 00:15:02.800 --> 00:15:06.600 and there's no surprise to that. It's a 283 00:15:06.100 --> 00:15:09.400 matter of cash in cash out debit and credit 284 00:15:09.200 --> 00:15:12.700 the balance. It balances. Even if you 285 00:15:12.400 --> 00:15:15.700 make a mistake in the calculation for example of the 286 00:15:15.400 --> 00:15:17.400 taxes in the p&l. 287 00:15:18.000 --> 00:15:21.200 Now if you want to build the accounts, what do 288 00:15:21.000 --> 00:15:24.200 you have to do first start with p&l? 289 00:15:24.800 --> 00:15:29.200 And cash p&l is a profit film cache 290 00:15:28.300 --> 00:15:31.900 is a cash film of the year. You need 291 00:15:31.700 --> 00:15:35.200 to build these two films in parallel starts with 292 00:15:35.200 --> 00:15:39.100 p&l and then complete with cash but calculate 293 00:15:38.200 --> 00:15:41.700 some cash items while you are 294 00:15:41.300 --> 00:15:44.800 building the p&l. Once you have the two films 295 00:15:44.600 --> 00:15:47.700 in your hands. You can build a picture at the 296 00:15:47.600 --> 00:15:50.600 end of the period which is them there balance it. 297 00:15:51.200 --> 00:15:54.700 There's a strong principle for inventories for 298 00:15:54.400 --> 00:15:58.000 a cancer receivable for a chance payable and later 299 00:15:57.600 --> 00:15:59.300 for some other items. 300 00:16:00.200 --> 00:16:03.900 What you have in your hands at the beginning plus what you 301 00:16:03.500 --> 00:16:06.700 add minus what you withdraw is 302 00:16:06.500 --> 00:16:10.200 what you have in your hands at the end of the period which 303 00:16:09.500 --> 00:16:13.800 is quite based on common sense. You 304 00:16:12.700 --> 00:16:17.300 remember that we use that for tables inventories, 305 00:16:16.000 --> 00:16:20.300 you need and value accounts receivable 306 00:16:20.100 --> 00:16:23.400 accounts payable and you remember that you should not 307 00:16:23.200 --> 00:16:26.700 forget initializing the beginning of 308 00:16:26.400 --> 00:16:30.000 the month with the end of the prior months, but 309 00:16:29.600 --> 00:16:33.200 you can observe that it also works for the other balance sheet 310 00:16:32.700 --> 00:16:37.000 accounts. This takes the example of the retain earnings retain 311 00:16:35.800 --> 00:16:40.300 earnings at the end of the period is retained 312 00:16:39.500 --> 00:16:43.500 earnings at the beginning of the period plus 313 00:16:42.800 --> 00:16:47.100 what you add earnings minus what 314 00:16:46.500 --> 00:16:48.600 you withdraw dividends. 315 00:16:49.300 --> 00:16:53.100 It works also for taxes it also for dividends 316 00:16:52.600 --> 00:16:54.500 payable Etc. 317 00:16:55.300 --> 00:16:59.200 The last point on which I would like to insist is that some costs 318 00:16:58.600 --> 00:17:02.500 R&D marketing are actual 319 00:17:01.800 --> 00:17:03.200 Investments. 320 00:17:04.100 --> 00:17:07.800 So don't consider that costs are only usages and 321 00:17:07.400 --> 00:17:10.700 consumptions an investment is characterized by 322 00:17:10.500 --> 00:17:13.800 the time lag between the moment you spend under the merger 323 00:17:13.700 --> 00:17:17.600 heard some Investments are actually showed as 324 00:17:17.200 --> 00:17:20.600 costs in the p&l. Now. We did 325 00:17:20.300 --> 00:17:23.900 the job for February together. What you 326 00:17:23.700 --> 00:17:27.400 are going to do. Now in March is that you are going to build the 327 00:17:26.900 --> 00:17:30.500 accounts by yourself so that we are ready to 328 00:17:30.200 --> 00:17:33.500 make the investment in April, but this will 329 00:17:33.400 --> 00:17:36.200 be module 3 of this accounting course.