So now we look at it, and they've had the same sort of a weekend.

So they had their sales and their cash expenses and none of that has changed.

But from a net income standpoint, we have depreciation expense of $150.

That means, we only made $50 of netted value.

We bought that table several periods ago, but reflecting the economic use of it,

in this period.

On our cash flow statement, if we didn't buy it this period,

then it didn't happen this period.

Therefore, we don't impact it at all.

That means we have cash from operations of 200.

Now these two aren't equal and we're going to have to reconcile them,

so how do we do that?

Well, the operating of our cash flow statement would look something like this.

We start with our net income of 50 and our cash from operations of 200.

Remember again, we're not calculating the cash from operations,

we know what both of those are.

Now we just need to figure out what are the differences between them.

Well in this simple example there's just a single adjustment we need to make.

We need to add back that $150 of depreciation expense that had

decreased net income to get to our cash from operations of 200.

But let me show you another example that goes the other way.

We're going to forget about the table for now and we are going to think though,

that we have prepaid rent.

So at the end of the day, we really like this corner.

We got a lot of sales out of it.

We go to the homeowner and say, hey, can we have this for next week?

And they say, sure, if you give me the cash now because otherwise I'm worried you

might not show up.

So we go ahead and gave them $70 of rent and we're going to get the value of that

at next week's game when we set up and make ourselves then.

So we've got our same sales and cash expenses,

we just need to think about what do we do with this $70.

From an accrual accounting standpoint, we don't do anything.

It's prepaid rent, we took one asset cash,

we turned it into another asset a prepaid rent.

We'll reflect that value when we use it up next period.

So our accrual income is $200, but

from a cash flow standpoint we use $70 worth of cash for this period.

We're not going to think about wait a minute.

Next week we're going to be able to use that up.

It's just cash that's gone.

That means we have cash from operations of 130.

Again, this two unequal and

now we're going to have to reconcile, how do we do that?

Well again, we start with our net income this time of 200, and

our cash flow from operations this time of 130.

And we just list out the difference, in this case, we put a negative sign on it,

because it's something that didn't impact net income but that lowered our cash.