Accounting vs. Economic

Main Difference

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).

Accounting vs. Economic — Is There a Difference?
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Difference Between Accounting and Economic

Accounting vs. Economic

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.

Accounting vs. Economic

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.

Accounting vs. Economic

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.

Accounting vs. Economic

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

Accounting vs. Economic

Accountingverb

present participle of account

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Economicadjective

Pertaining to an economy.

Accountingnoun

(accounting) The development and use of a system for recording and analyzing the financial transactions and financial status of a business or other organization.

Economicadjective

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

Accountingnoun

A relaying of events; justification of actions.

He was required to give a thorough accounting of his time.

Economicadjective

Pertaining to the study of money and its movement.

Accountingadjective

Of or relating to accounting.

General accepted accounting principles
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Economicadjective

of or relating to an economy, the system of production and management of material wealth;

economic growthaspects of social, political, and economical life

Accountingnoun

a convincing explanation that reveals basic causes;

he was unable to give a clear accounting for his actions

Economicadjective

of or relating to the science of economics;

economic theory

Accountingnoun

a system that provides quantitative information about finances

Economicadjective

concerned with worldly necessities of life (especially money);

he wrote the book primarily for economic reasonsgave up the large house for economic reasonsin economic terms they are very privileged

Accountingnoun

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

Economicadjective

financially rewarding;

it was no longer economic to keep the factory openhave to keep prices high enough to make it economic to continue the service

Accountingnoun

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

Economicadjective

using the minimum of time or resources necessary for effectiveness;

an economic use of home heating oila modern economical heating systeman economical use of her time

Accountingnoun

a statement of recent transactions and the resulting balance;

they send me an accounting every month

Comparison Chart

Accounting ProfitEconomic Profit
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).
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 CostEconomic Profit = Total Revenue – (Total Explicit + Total Implicit Cost)

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.