Accounting &Economic profit

By, Swathima.S & Swethanjali .D

What is Accounting Profit? an accounting profit is the excess of

business income over the business expenses.

The business earns money after selling their goods or services.

If the money they earn is more than the money they spend for making/providing the goods/services, it is said that the business has made an accounting profit.

What is Accounting Profit?

Accounting expenses don't only include the tangible money that was spent by the business, but also includes any provision for losses or depreciation that the business makes over an accounting period.

Thus we can say that an accounting profit is the excess of accounting income over accounting expenses. Accounting Profit = Total Income –

Total Expenses

What is Economic Profit?

Economic profit is not just the excess of total accounting income over the total accounting expense. To the cost of an investment, it also adds the opportunity lost cost of another investment option.

What is Economic Profit?

Thus an economic profit means that not only did you make a profit on your investment, but you made more profit than you would have made otherwise.

Economic Profit = Total Income – Total Expenses – Opportunity Lost Cost

Difference Between Accounting and Economic 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.

Difference Between Accounting and Economic Profit

Economic profit is obtained when the revenue exceeds the opportunity’s cost.

accounting profit can be referred to as the revenue obtained by a firm after all the economic costs are met.

The economic profit will always be lesser when compared to accounting profits.

When compared to economic profit, the accounting profits are only given during leap years.

When considering accounting profits, it is defined as the revenue deducted from the explicit costs.

Economic profits, as the revenue deducted from explicit and implicit costs.

When calculating accounting profits, the things that are considered include leased assets, non-cash adjustments/transactions for depreciation, provisions, allowances, and captalising development costs.

When calculating economic profits, several things, like opportunity costs, residual value, inflation level changes, tax rates, and interest rates on cash flow, are taken into account.

Questions…?

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