Question

Distinguish between economic and accounting profit

Answer 1

Answer:

The main difference between accounting and economic Profit is that accounting profit refers to monetary revenue minus monetary costs which includes any type of cost in the organization in the form of rents, salaries, material costs etc. Economic profit refers to the monetary revenue minus total cost.

Explanation:

Answer 2

The differences between economic and accounting profits exist in their definitions, despite their similarities.

What is economic profit?

Economic profit has the following characteristics:

• It includes both explicit and implicit costs.
• It is determined by economic principles, especially the economic concept of opportunity cost.
• In summary, economic profit is the total revenue minus both implicit (opportunity cost) and explicit costs.

What is accounting profit?

Accounting profit has the following characteristics:

• It includes only explicit costs.
• It is determined by accounting principles (U.S. GAAP or IFRS).
• It is equal to net income or revenue minus explicit expenses.

Thus, there are differences between accounting and economic profits.

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