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let's see if we can better understand what a cash flow statement for my simplified shipping truck example company what it would actually look like and I say it's simplified because this is a very simplified income statement for each of these periods I'm not really showing all of the expenses and all of the details that you would actually have for a shipping company but we really just care about the accounting so let's just say at the beginning of this fiscal year when I started this company I had $60,000 we know from our example that we used that $60,000 to buy a $60,000 truck and on the cash flow statement you expressed that saying I spent $60,000 on on capital expenditures sometimes it's property plant and equipment and so you would actually put the $60,000 right over here on capital expenditures and hopefully we'll understand this a little bit and remember the cash flow statement is a really a way of reconciling the profit with the starting and the ending cash so let's just think about this a little bit our profit here if we just take the number that we have right over here our profit in the first period is $30,000 it's $30,000 we're assuming nothing shady is happening with the accounts payables accounts receivables that they're not changing over the course of the year and then we have the depreciation and we want to think a little bit in this video what is the depreciation due to the cash flow statement so I'll just write down the number first so we have this depreciation value this is the truck depreciation now it's not just the expense value of the truck we're spreading that cost over three years so 20,000 over three years is the life of that truck so the depreciation each of these periods is 20 and what I'm going to show you here is to figure out the cash from operations from actually what is the how much Cash's are the operations producing we want to add back we want to add back this depreciation to the profit so our cash from operations is going to be $50,000 and it might not seem obvious to you at first well I want to think about it this $20,000 that we're showing as an expense in every period it actually might be a little bit more obvious if we think about period 2 or period 3 we're showing it as an expense but no 20,000 did not go out of the door in year 2 or year 3 we're just showing some of the expense from previous years so no cash went out of the door so in any of these periods the depreciation expense should be added back to the operating profit to figure out the cash from operations and you might say wait but we spent that $60,000 especially in year one and that good here goes under capital expenditures that wasn't somehow the operations didn't push that cash out the business itself this was just an investment that we made so it all works out because what we see is we got fifty thousand cash from operations and that makes sense because our revenue was a hundred thousand just the labor the cash labor people's salaries were fifty thousand so that's fifty thousand of profit this was not a cash expense so from our operations we had fifty thousand dollars but then we did have the capital expenditures of sixty thousand dollars for the actual truck so our ending cash would be sixty plus fifty minus 60 so our ending cash is going to be fifty thousand dollars now it might make a little bit more sense if we go to the next period our starting cash here is fifty thousand dollars it's our ending cash of the previous period our profit once again is a thirty thousand dollars you add the profit to the depreciation you get a fifty thousand dollar operating profit same as the previous year or I should say cash from operations and that makes sense because our operations really haven't changed we have a very very steady business but this year I have no capital expenditures I have no capital expenditures I'm using the same trucks from last year so now our ending cash we are starting cash was fifty we have fifty thousand from operations now our ending cash is one hundred thousand dollars so hopefully that gives you a sense of how of why we add back depreciation when we figure out the cash from operations and how it works out in our cash flow statement