Question

Explain the following terms:

Debt vs equity
Value vs cost
Market vs book value
The income statement
GAAP
Non-cash items
Cash basis vs accrual basis accounting
The realization principle
Time and costs
Taxes

Answer 1

Solution:

As there are multiple question asked first four are answered below:

1. Debt vs equity

Debt	Equity
Debt is a loan taken and which needs to be replayed. Debt is used as a loan and the creditors can only claim the loaned amount plus the interest	Equity owners are the share holders of the company. Equity is sharing the ownership of the company with individuals which allow them to receive dividends and voting tights.
The involvemnt is very less	Involvement is more in case of equity holders.
fixed cost of capital	cost of capital is not fixed in equity
No dividend is paid	Equity holders receive dividends whenever company decides
Debt holders are to be paid irrespective of comapny earns profit/loss.	Equity holders are paid only if company earns profit.
Debt is to be paid first	Equity holders are to be paid last

2. Cost vs Value

Cost	Value
Cost is the amount that is incurred in producing a product.	Value is the utility of a good or service.
It is ascertained from producer perspective	Value is ascertained as per user perspective
For e.g. If a company manufactures shirts, then the expenses incurred on raw materials , rent, taxes etc determine the cost of product.	For E.g. If you are going to a water park by spending $ 1000, the output seen is worth the expense, then it is the value you create for water park, regarding the service offered there.Here the worth is its value

3. Market vs book value

Book Value	Market Value
Book value is the value written in the books of the company. It is the actual worth of the asset of the company.	Market value is the price of an asset at which the same can be bought or sold in the market.
Book value is the accounting value of an asset and often does not reflect the true market value at which an asset can be bought or sold.	Market value provides more accurate current value as per demand and supply of an asset.

4. The income statement shows the financial position of a company and company's performance. The income statement summarize the income and expenses generated by the company over the entire reproting period.