[MUSIC] Let's conclude this third week of Accounting: Making Sound Decisions. So today we have already prepared three financial statements. First of all the balance sheet. The first and most important financial statement because everything is here. However we say the balance sheet is a picture of a point in time. A picture with all the sources of capital and all the uses of capital. Share holders though, probably want to know more about the profitability. So what happens during the year with the operations and this is why we need to introduce a second financial statement that explains what happened to the profit and loss account during the year. Remember that the profit of loss accounts has been moved, the profit for the year has been moved to retain profits. And so, we need to explain what happened to the profit. The income statement explains to us, analyzes the profitability of the business. So we start with sales, minus cost of goods. We got the gross margin and we get different bottom lines and then we get the net profit. Net profit is the increase in the net worth of the shareholders thanks to the operations. Thanks to the fact that we are generating values, selling a product at the higher price than the cost that we incur when selling that product. Then we said besides the profit and loss account, shareholders probably want to know more about cash. Cash is another very important account because if we run out of cash, we're out of business. And for this we need a different financial statement. Why? Because profitability, profit is not the same as the change in cash, therefore the income statement doesn't help us to explain the change in cash. To explain the change in cash we have introduced today the cash flow statements. For the cash flow statement we have used the direct method. The only thing that we do here is take the cash t account and then all the different in flows and out flows that you see there to classify them under cash flow from operations, cash flow from investing activities, and cash flow from financing activities. The addition of these three kinds of cash flows is going to be the total change in cash for the year. Now that we have learned about the three main financial statements, what are we going to do next week? Well next week first I want to analyze these financial statements in a deeper way. So I'm going to analyze the evolution in the performance of the compass book store in these two years of operations. And then I'm going to get deeper in this difference between profitability and liquidity with all the implications it has. Actually I'm going to explain a little bit more the concept of accrual accounting. At the end of next week, we are going to read and analyze the financial statements of a big, real company. Let's not forget that the goal of this course is, by the end of it, you are able to read and understand financial statements for your decision making. I'm going to leave here the recommended readings for this week and the coming week. And remember, the coming week is the last week of the course where hopefully, all these concepts are going to fall into place. So please hang in there. I'll see you next week. [MUSIC]