[MUSIC] Okay, having looked at these accounting concepts and in particular the matching concept. This matching principle where we're matching income and expenditures of the relevant period, despite it having been paid or not. There's one other really important concept that I need to tell you about and that's the concept of depreciation. Now, when you buy an asset, a non current asset, a long term asset, such as a motor vehicle or a large piece of equipment, or a computer, even a building, a piece of land, it's not really fair. That year one should bear the total cost of that particular asset which could be millions of pounds. So, what accountants do is they spread the cost of that asset over what we call his useful life, and that's called depreciation. Let's be clear before move into depreciation, I'm not talking about spreading the cash. The cash payment is made when you buy the asset. What I'm talking about Is profit and how if each year is going to be utilizing and using that particular asset, then it's only fair that each year should get its fair share of the cost of the asset. That's one rationale behind depreciation. The other rationale behind deprecation is that these assets lose value over time. So your depreciation is there to attempt, to reflect the value of the asset as it ages. In other words, it's reduction in value for wear and tear etc. So depreciation has a two-fold effect in accounting. Is to make sure that year gets it's fair fair. In other words, the spreading of the cost and to try to reflect the value of the asset as it ages through wear and tear. A simple example of depreciation. If you bought a motor vehicle for 10,000 pounds and you expected it to last for five years. Then simply dividing the cost of 10,000 by the life of 5 years means that your depreciation charge would be 2,000 pounds each year. What does that mean? It means that the expense of depreciation will be charged to the income statement, 2,000 pounds, for the next five years. Of course, don't forget, the 10,000 pounds cash would have gone out of your business on the day that you actually purchased that motor vehicle. And I just reinforced that fact that now maybe you're starting to realize that cash is not the same as profit. So depreciation, an important concept to understand, and that will figure in our question that I'll go through shortly. [MUSIC]