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Accounting vs. Economic

With many objectives of the business, the main goal the business is to earn profits, so the company remains operational and brings economic stability to the people affiliated with it. The profit is the reward for the entrepreneur or the businessman who bears the risk and offers the services to the people. In the common mindset, profit is the difference between the costs and revenue of the company, the three terms accounting profit, and economic profit, are similar in many regards but yet they differ from each other in many ways. The accounting profit is the net income that remains after the deduction of its explicit cost of it. To calculate the accounting profit one needs to subtract the explicit cost from the total revenue of the company. On the other hand, economic profit is the supernormal profit as it is the difference between the revenue generated and the total cost (including explicit cost well as implicit cost).

Key Differences

The calculation of the accounting profit is made by the accepted accounting principles (GAAP). Contrary to this, the economic profit is not calculated using GAAP it revolves around the concept of implicit costs and the opportunity foregone.
The accounting profit is the actual gains and losses made by the company in a particular year. On the other hand, economic profit is the supernormal profit.
The accounting profit tells about the profitability of the company, whereas the economic profit, tells about that how well the company is allocating its available resources.

Samantha Walker
Jul 27, 2017
Accounting Profit = Total Revenue – Total Explicit Cost, Economic Profit = Total Revenue – (Total Explicit + Total Implicit Cost).
Janet White
Jul 27, 2017

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Definition

The accounting profit is the actual gains and losses made by the company in a particular year.
The economic profit is the supernormal profit as it is the difference between the revenues generated and the total cost (including explicit cost well as implicit cost).
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Calculation

The calculation of the accounting profit is made by the accepted accounting principles (GAAP).
The economic profit is not calculated using GAAP it revolves around the concept of implicit costs and the opportunity foregone.

Tells

The accounting profit tells about the profitability of the company.
The economic profit, tells about that how well the company is allocating its available resources.

Formula

Accounting Profit = Total Revenue – Total Explicit Cost
Economic Profit = Total Revenue – (Total Explicit + Total Implicit Cost)

Accounting and Economic Definitions

Accounting

The practice or profession of maintaining the financial records of a business, including bookkeeping as well as the preparation of statements concerning the assets, liabilities, and operating results.

Economic

Of or relating to the production, development, and management of material wealth, as of a country, household, or business enterprise.

Accounting

Present participle of account
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Economic

Of or relating to an economy
A period of sustained economic growth.

Accounting

(business) The development and use of a system for recording and analyzing the financial transactions and financial status of an individual or a business.

Economic

Of or relating to the science of economics
New economic theories regarding the effects of deficit spending.

Accounting

A relaying of events; justification of actions.
He was required to give a thorough accounting of his time.

Economic

Of or relating to the practical necessities of life; material
Wrote the book primarily for economic reasons.

Accounting

(law) An equitable remedy requiring wrongfully obtained profits to be distributed to those who deserve them.
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Economic

Financially rewarding; economical
It was no longer economic to keep the manufacturing facilities open.

Accounting

A convincing explanation that reveals basic causes;
He was unable to give a clear accounting for his actions

Economic

Efficient; economical
An economic use of home heating oil.

Accounting

A system that provides quantitative information about finances

Economic

Pertaining to an economy.

Accounting

The occupation of maintaining and auditing records and preparing financial reports for a business

Economic

Frugal; cheap (in the sense of representing good value); economical.

Accounting

A bookkeeper's chronological list of related debits and credits of a business; forms part of a ledger of accounts

Economic

Pertaining to the study of money and its movement.

Accounting

A statement of recent transactions and the resulting balance;
They send me an accounting every month

Economic

(obsolete) Pertaining to the management of a household

Economic

Pertaining to the household; domestic.

Economic

Relating to domestic economy, or to the management of household affairs.
And doth employ her economic artAnd busy care, her household to preserve.

Economic

Managing with frugality; guarding against waste or unnecessary expense; careful and frugal in management and in expenditure; - said of character or habits.
Just rich enough, with economic care,To save a pittance.

Economic

Managed with frugality; not marked with waste or extravagance; using the minimum of time or effort or resources required for effectiveness; frugal; - said of acts; saving; as, an economical use of money or of time; an economic use of home heating oil.

Economic

Of or pertaining to the national or regional economy; relating to political economy; relating to the means of living, or the resources and wealth of a country; relating to the production or consumption of goods and services of a nation or region; as, economic growth; economic purposes; economical truths; an economic downturn.
These matters economical and political.
There was no economical distress in England to prompt the enterprises of colonization.
Economic questions, such as money, usury, taxes, lands, and the employment of the people.

Economic

Regulative; relating to the adaptation of means to an end.

Economic

Of or pertaining to economics.

Economic

Profitable. Opposite of uneconomic.

Economic

Avoiding waste; as, an economical meal. Opposite of wasteful.

Economic

Of or relating to an economy, the system of production and management of material wealth;
Economic growth
Aspects of social, political, and economical life

Economic

Of or relating to the science of economics;
Economic theory

Economic

Concerned with worldly necessities of life (especially money);
He wrote the book primarily for economic reasons
Gave up the large house for economic reasons
In economic terms they are very privileged

Economic

Financially rewarding;
It was no longer economic to keep the factory open
Have to keep prices high enough to make it economic to continue the service

Economic

Using the minimum of time or resources necessary for effectiveness;
An economic use of home heating oil
A modern economical heating system
An economical use of her time

What is Accounting Profit?

The accounting profit is the actual gains and losses made by the company in a particular year. The calculation of the accounting profit is made by the accepted accounting principles (GAAP). In easy words, we can say that it is the total revenue earned by the company after the explicit cost is subtracted from it.

Other than the accounting profit, this type of profit is also known as the net income of the company. To better understand accounting profit, one needs to know a little more about the terms of net income and explicit cost.

The net income is the income of the company or the person after the taxes, and other deductions are made from the gross income. It should be kept mentioned that the gross income is the income of the company or the person without exclusion of expenses, taxes, or any other adjustments.

On the other hand, An explicit cost is a cost that is directly incurred by the firm, company, or organization during the production period. In this type of cost, the outflow of cash takes place to utilize the factors of production.

The record of the explicit cost is noted by the accountant of the company, and can easily be traced as each and every expenditure is carefully noted, and is kept as a record. If one wants to know about the profitability of the company or the firm, the accounting profit is the profit that describes it all.

What is Economic Profit?

The economic profit is the supernormal profit as it is the difference between the revenues generated and the total cost (including explicit cost well as implicit cost). It is quite similar to that of the accounting profit, the main point which distinguishes it from all other profits is the implicit cost, which mainly revolves around the concept of the opportunity foregone.

To know comprehensively about the concept of economic profit, one should have a basic how-to know of the implicit cost. Implicit cost is the cost that is not directly incurred by the firm or the company.

In this type of cost, an outlay of cash doesn’t take place, so that is why it isn’t noted, and subsequently, it can’t be traced. It mainly revolves around the concept of opportunity cost, which tells about the (indirect) cash or profit foregone due to opting for the alternative. The loss or the profit in the implicit cost doesn’t directly have any impact on the profitability of the company.

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