What’s the difference between accounting profit vs economic profit?

What’s the difference between accounting profit vs economic profit?

Is a big Question what’s accounting profit vs economic profit. Many peoples think it same. But, both are same or not it’s a big question.

For example, as a businessman you state a restaurant business. So do you have any idea in your daily needs and daily profit?How to calculate your profit (income – expanse) = Accounting Revenue and economic revenue is same as but equation not same it’s some different.It calculates your business profit use different strategy and different idea. It’s help to calculate before state a business.

When you state a business what do you think? It will be perfect for me and this business is profitable or not. Economical calculation make clear this business idea is good for you future. Economical calculation supports you. how to state a business and how to grow it. It will be better for your future. You are clearly understand for your future business plan will perfect or wrong.

Accounting-profit

Accounting profit vs economic profit example:

For one year calculation you state a restaurant business

Now we calculate an Accounting formula:

Per year revenue                                  $600,000

And your expanse is

Food cost ——————  $100,000

Employ cost—————– $100,000

Space Rent —————–$200,000

Equipment rant————- $50,000

                                     ___________

* Our total expanse   =    $450,000 (-) $450,000

                                                      ______________

 *now your annual profit is                   $150,000          (Accounting profit $150,000)

Now we use same formula and let’s seewhat’s the difference between accounting and economic revenue so let’s go

Per year revenue                                 $600,000

Explicit:

Food cost ——————  $100,000

Employ cost—————– $100,000

Space Rent —————–$200,000

Equipment rant————- $50,000

Implicit:

Wages ———————-  $175,000                                 ————————- (a)                        

                                     ___________

Total calculation is          $625,000 (-) $625,000

                                                    ______________

 *now we see the lose                      (-)   $25,000                    (Economic loss $25,000)   

Note:(a)

If You have a job and how much you earn in year $175,000 this cost we show in your citations (a)

It’s the difference between accounting and economic calculation now you decided you are starting or not in your business. Actually accounting equation is dependent on his profit or loss but the economic equation measure you can do this and how to do this.

Accounting profit and economic profit formula:

* TR = P x Q                                                 [Total revenue = price + Quantity]

* TC = FC + VC                                            [Total cost = Fixed cost + variable cost]

* TC = Explicit Cost + Implicit Costs

* Profit =TR – TC

* Accounting profit = TR – Explicit Costs

* Economic Profit = TR – Explicit + Implicit cost

Accounting profit formula

Accounting profit is the difference between the amounts of revenue. Howto calculateAccounting calculation formula we show you.

                                  Accounting profit = revenue – Explicit cost}  

An explicit cost is, in essence, anything that involves the exchange service and another benefit for money.

Building rent

Cost of raw materials

Utility cost

Wage bill and employ salary

Taxes that are paid by the business

How much revenue you earn it depends on you and your capability? If you have a (Berger shop) and you’re daily sail is 500 pitch Barger and your burger price is $3 dollar. So your revenue is

[500×3= $1500]

Per day. It depends on your business sale and how much profit you earn. Actually, our daily business, we calculate how much we expand and how much we profit this both are plus or minus we find an amount and this is your Accounting Revenue. When we calculate your revenue we make sure to deduct our daily expense or how much revenue you earn.

Economic-profit

Accounting profit example:

Accounting profit = Revenue – your daily cost= profit

Accounting profit =                                  $1500

(-) your daily cost                

    Food cost (per day)              $500

    Employ cost (per day)          $200

    Equipment rental (per day)  $100

    Space Rent (per day)           $100

                                          ___________

                                                   $900       

                                                                  $900

                                                           __________

                                                                 $600

This is your daily Accounting profit.Already I explain it depends on you and your quality.

Economic profit formula

Now we discuss about economic formula it’s same as Accounting formula but something different and calculative.

{Economic profit = Revenue – Explicit cost -implicit cost}

{Economic = Accounting profit – implicit cost}

Economic revenue is so much importance to calculate in our gross profit and loss. If you become a businessman youmust needed economic calculation? It’s easy to calculate your profit and loss formula. Without calculation, you can’t go far.

Economic profit example:

Economic profit = Revenue – Explicit cost -implicit cost

Accounting profit =                                  $1500

(-)Explicit cost

    Food cost (per day)             $500

    Employ cost (per day)          $200

    Equipment rental (per day) $100

    Space Rent (per day)          $100

    Implicit cost (your salary)     $500

                                          ___________

                                                $1400       

                                                                $1400

                                                           __________

                                                                  $100

So your profit is $100 dollar (per day) it’s your economic profit calculation

Explanations:

Accounting profit and economic profit don’t confuse anymore let me explain. These concepts the economic profit defined as total revenue – total implicit cost – total explicit costs. Implicit cost is the opportunity cost of the business and explicit costs are daily expenses of the business. The economic profit formula equal total revenue – total implicit costs less total explicit costs in simple. If we define accounting profit consists of total revenue minus total explicit costs, in a simple mathematical formula.

Accounting profit = total revenue minus total explicit costs the accounting profit have a name (net income).

Economic profit side-by-side for the better explanation accounting profit has calculated the rule and regulations set by generally accepted accounting principle but economic income is calculated with the help of economic rules and procedures.

The explicit cost only used in the calculation of the accounting profit in economic profit explicit cost and implicit cost both less in total revenue the accounting profit is used income tax and financial performance of the company but economic profit has used the company to determine the market entry stay or exist.

Conclution:

So accounting revenue and Economic revenue calculation process are same but its idea and measurement policy is different. In our daily life accounting revenue make clear to know how much you profit and Economic Revenue show you your actual business plan this work is suitable for you Economics revenue answer your question and approach for your right formula.

Leave a Comment