[MUSIC] Okay, so hopefully you're building up a bigger picture now, of what's included in the financial statements. We discussed the layout of the income statement. Let's put some numbers on it. Let's go back to GENIUS Ltd, and maybe sort of see if you can calculate what profit they're making this year. You've got to remember that we recognize the sale, we recognize the revenue, irrelevant of whether that revenue or that sale has been paid by the customer. Also, don't forget, the same is true of any of our expenses. So just to be really clear here, when I talk about the revenue, I'm talking about the complete sales, irrelevant of whether the customers have paid or not. And in the instance of GENIUS Ltd, the revenue is 80 pounds. 80 pounds for all of the sales that we made. That's the cost of goods sold. Now, if you can remember, that we actually purchased 50 pounds worth of goods to sell, 50 pounds of worth of inventory if you wish. And 80% of that is what we sold. That's what the question referred to. And don't forget, this is the cost of the things that we sold not the cost of the things that we purchased. So in this instance, it's 80% of 50 or 40 pounds worth of cost of goods sold. To calculate our gross profit it's your sales revenue of 80 minus your costs of goods sold at 40 giving us a gross profit of 40 pounds. It's from that gross profit that we then deduct our expenses. And we got some rent, rent is 5 pounds. We've got some other various expenses, 5 pounds. And then, we have this depreciation charge. So if you can remember, we were depreciating the asset over its useful life. And we bought an asset that was 50 pounds, and we said it would last 5 years. And therefore, each year's depreciation charge is 10 pounds. So we've got 10 pounds with the depreciation that becomes an expense to the business during this particular year. If you add up all those total operating expenses. So you've got your 5 pound dementing, your 5 pound in various expenses, plus your 10 pounds worth of depreciation. You got a total expenses amounting to 20 pounds. If we deduct that from our gross profit of 40, we're left with an operating profit of 20. Just to take a breather for a moment and think about this. We've got operating profit. We can also call it by a different term. That might make it more understandable to you. because this is our profit, if you wish, before we've paid any interest and before we've paid any tax, so why don't we call it that? So you may also see the term earnings before interest and tax. So your operating profit is the same as your earnings before interest and tax. In your business plan it doesn't matter what you call it, either one of those two things is okay with me. We've also got some loan interest and the loan interest here amounted to 5 pounds which we have paid. So if our earnings before interest and tax out operating profit with 20, and we've now paid 5 pounds worth of interest. That means that our profit before tax must be 15 pounds. The question referred to the tax of the year being 3 pounds. So I'll deduct my tax of 3 pounds and my profit before tax, giving me a profit for the year of 12 pounds. So now we know what the profit for the year is, it's 12 pounds. I think we can do with the dividend now, although we won't show it on the phase of the income statement. It will make life a little bit easier later on. So the profit after tax is 12 pounds and the dividend that was paid was 10. If you can recall what that means, is that the dividend is the reward given back to the owners. And like I said previously, that when a company makes a profit, it will give some of that profit back to the owners in the form of a dividend, and it will keep some of that profit within the business to reinvest for future growth, for future profit. So in the case of GENIUS Ltd, what they've done is that made a profit after tax. A profit for the year, a 12 pounds. They'll be giving 10 pounds of that back to the owners in the form of the dividend and retaining too within the business to reinvest for future profits. [MUSIC]
