 Looking at the income tax formula, we're focused on line one income. Remember in the first half of the income tax formula is an essence and income statement. Although an outline just to scaffolding other forms and schedules flowing into these line items, the schedule C being one of them for business income, it being in essence and income statement in and of itself with business income minus business expenses. The net income then rolling in from schedule C to line one income of our income tax formula. Looking at the first page of the form 1040, we note that the schedule C would flow into the schedule one which would then flow into line eight here of page one of the form 1040. This is a schedule C where we have the profit or loss from business where we can see it's an income statement because we have income and the expenses. All right, so now we're gonna be focusing in on figuring the gross profit. Remembering that the schedule C is an essence and income statement. If you're dealing with a non-manufacturing or a company that doesn't deal with inventories, then it's gonna be more of a simple type of calculation, possibly more of like a one step type of income statement you might call it where you have income minus the expenses. But if you have a manufacturing company or one that purchases and sells inventory of a merchandising type of company, then you have to deal with inventory and the cost of goods sold is that major expense which represents the consumption of the inventory and we wanna match out that consumption of the inventory that was used to help generate the revenue in the same time period. Therefore, we have more of a multi-step income statement in that case having a pit stop on the way down the road to get to net income, the bottom line of the income statement that being the gross profit, revenue minus cost of goods sold gives us the gross profit. So okay, after you have figured the gross receipts from your business chapter five and the cost of goods sold chapter six, you are ready to figure your gross profit. So it's not really like yucky gross or anything. So don't get like scared of it. It's not icky gross, it's just called gross profit. So you must determine gross profit before you can deduct any business expenses. So the business expenses are gonna be after this kind of step along the way. So these expenses are discussed in chapter eight. Now notice, you kind of get the idea that business expenses are different than cost of goods sold, but really note that this is just a different categorization. The cost of goods sold is in essence an expense, but it's just that big massive expense for those companies that deal with inventory of the cost.