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at a given time. For instance, a property manager purchased a computer for their office 2 years ago. The computer will be valued at far less now than what it was when the property manager first purchased it. Hence, this depreciation is adjusted for in the balance sheet through an appropriate net book value.
Equity
Equity consists of the money invested into the business from both internal and external sources. Internal sources include capital investments from the owner and shareholders,
whereas external sources include long-term loans and debentures from private and recognized lenders. If you’re able to recall the accounting equation, you would be able to tell that equity is what is left after liabilities are deducted from assets. Equity is the portion of the company owned by owners and investors.
Inventory
Inventory is the term used to classify all assets that have been purchased by a company to sell to their customers but remain unsold. Inventory can come in three different forms for most manufacturing businesses.
The first type includes finished goods, which is common for some retailers, the second type includes work in progress, which consists of inventory still in the manufacturing process at the time of recording these entries, and the final type consists of raw materials, which are yet to enter the manufacturing process but are currently in possession of the business. Most property managers do not deal with inventory, which is why they don’t record inventory on the balance sheet.
Liability
A liability is the accumulation of all debts owed by an organization. Liabilities include accounts payables, loans, payroll loans, and accrued expenses.
Terms in the Income Statement
The income statement or the profit and loss statement is the second of the two most common financial statements recorded by organizations today. Some of the terms most commonly used in an income statement include:
Cost of Goods Sold
The cost of goods sold, or COGS, are all expenses that are directly related to the manufacturing or procurement of a product or service. The cost of goods sold measures the direct costs of manufacturing goods that are ultimately sold for revenue generation. An example of COGS in most firms would be the cost of materials incurred or the cost of direct labor performed for providing a service or for manufacturing goods.
Depreciation
Depreciation is recorded as an expense in the income statement and accounts for the value lost in an asset over a period of time. Generally, depreciation affects both the income statement and the balance sheet, which is why it is recorded as an adjusting entry rather than being mentioned in the trial balance. The depreciation for a period is calculated through either the straight-
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