Demai, Chapter Five, Mishnah One
This mishnah teaches how one should separate terumat maaser (one percent of the total produce) and hallah (1/48 of the produce) from loaves of bread that he buys from an am haaretz baker. The loaves are, in other words, demai.
One who buys bread from a baker how should he tithe?
He should take sufficient for the terumat maaser and for hallah and say: A hundredth part of what is here shall be tithe on this side, and what is nearest to it shall be the rest of the tithe. That which I made tithe will become terumat maaser for the rest, the remainder will be hallah, and the second tithe tithe is to the north or to the south of it and that will be exchanged for money.
The first thing that he does is separate 1/100 of the loaf (or loaves) and then another 1/48 for hallah. This is the only part of the loaves that he will not actually get to keep for himself. At this point he doesnt make any verbal declaration.
After having separated these two amounts he now declares that the 1/100 part that he took comes out of a 1/10 part of the loaf that is to be maaser (first tithe). The other 9/100 that remains on the loaf is now maaser, but because the loaf is only demai, he doesnt have to give it to the Levite.
He now declares that the 1/100 part that he already took will be terumat maaser, the terumah taken from the maaser, which goes to the priests. The other part that he took will be hallah.
Then he designates another tenth, on either side of the first tithe, to be second tithe. The second tithe he exchanges for money and then brings the money to Jerusalem where he will use it to buy food. This completes the tithing of demai process.
What he cannot due is simply take out the terumat maaser and declare it immediately to be terumat maaser because the tithe has to be designated before the terumat maaser is declared. This order must always be preserved.
He also cannot first designate the tithe and then separate and declare the terumat maaser because he is not going to actually give the tithe to the Levite. He has to make a distinction between the terumat maaser that he is going to give and the tithe that he is not going to give. Therefore, he first separates the terumat maaser, thereby making it distinct from everything else, then he designates the tithe and declares that 9/10 of it remain on the loaf. Again, this part he gets to keep.