What is the difference between Economic Profit and Accounting Profit?

Accounting profit is the difference between the total revenue and the total cost, excluding the cost of the opportunity. On the other hand, economic cost is the difference between the total revenue and the total cost, including the cost of the opportunity.

 

Accounting profit is the total revenue - total cost(Explicit Only).

Economic Profit is the total revenue - total cost(Explicit + Opportunity Cost)

That's is the reason why economic profit is always less than Accounting

the answer is Implicit Cost

The cost of the opportunity is the Key of the difference between them.

Accounting Profit

The actual profit earned by the company during a particular financial year is known as Accounting Profit. The profit is obtained by deducting the total explicit cost from total revenue. Here explicit cost means the directly ascertainable cost spent on account of running a business, i.e. rent on land and building, the wages of labor, salary for employees, interest on capital invested, etc.

The Accounting Profit is also known as net income or the bottom line. It appears in the last line of the income statement, and it is reported at the end of the financial year. This profit is the residual income left for distribution to shareholders of the company.

Economic Profit

Economic Profit also referred as extra profit or supernormal profit. It is the difference between total revenue earned by the company and the total costs (explicit as well as implicit). Explicit costs as explained above is the operating costs incurred while conducting the business activities. Implicit cost is the opportunity cost, i.e. the option forgone by the firm while investing the money somewhere else or using some other option. Implicit cost is also known as implied or imputed cost.

The economic profit is used by the economists to measure the financial position of the company. Along with that, it helps in forecasting the future performance. It works as a yardstick in judging the efficiency and effectiveness of the company’s profitability.

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Here are little difference Generally, profit is the difference between costs and revenue. Accounting profit and economic profit may sound similar, but they actually have major differences in how they measure a company's financial health. Economic profit takes into consideration explicit costs and implicit costs, while accounting profit only utilizes explicit costs.

Economic profit

Total revenue minus total cost, including both explicit and

implicit costs

Accounting profit

Total revenue minus total explicit cost

Generally, profit is the difference between costs and revenue. Accounting profit and economic profit may sound similar, but they actually have major differences in how they measure a company's financial health. Economic profit takes into consideration explicit costs and implicit costs, while accounting profit only utilizes explicit costs.

 

Accounting Profit

Accounting profit uses realized or actual gains and losses and is calculated according to generally accepted accounting principles (GAAP). It is a company's total revenue reduced by the explicit costs of producing goods or services. These explicit costs involve direct monetary movement and include expenses such as the cost of raw materials, employee wages, transportation, rent and interest on capital. Usually, accounting profit is limited to time periods, such as a fiscal quarter or year. Accounting profit computations are primarily used for income tax purposes, financial statement preparations and to review financial performance.

 

Economic Profit

Economic profit is determined by economic principles, not GAAP. Just like accounting profit, costs are deducted from revenues. Economic profit uses implicit costs, not just explicit costs. Implicit costs are considered opportunity costs and are normally the company's own resources. Examples of implicit costs include company-owned buildings, equipment and self-employment resources. Economic profit computations are not normally limited to time periods like accounting profit computations are. Economic profit is used more to judge total value of the company somewhat like the performance metric economic value added (EVA) would and is helpful in calculating total production costs.

 

 

 

Opportunity Cost (Implicit Cost)

Accounting profit is the excess of total revenues over only the explicit cost while Economic profit is more broad profit defination as including also implicit costs.

Eco Profit and Aucc Profit are similar with each other there is a minor dff. ,   Eco Profit consider both of explicit and implicit costs while Acco profit consider the operates of explicit costs only