ACCOUNTING PROFIT

V/S
ECONOMIC PROFIT
PRESENTED BY
DR. DEVYANEE SHARMA
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ACCOUNTING PROFIT
Accounting profit is the excess of business income
over the business expenses.
Accounting profit involves the total profit after
subtracting the explicit cost.

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Accounting profit = Total income Total
expenses
CONTD.
Accounting profit involves the total profit after
subtracting the explicit cost.
Explicit cost: Monitory cost of using market
supplied resources . Like money that is used to buy
an equipment.

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ECONOMIC PROFIT

Economic profit is not just the excess of total
accounting income over the total accounting
expenses to the cost of an investment, but it also
adds the opportunity lost cost of the another
investment option.
Economic Profit = total income total
expenses-opportunity lost cost

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ECONOMIC PROFIT

Economic profit includes total profit after subtracting
the economic cost.




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Economic cost = Implicit cost + Explicit cost
IMPLICIT COST
Implicit cost: monitory cost of using owner supplied
resources. Such as opportunity cost of using your
machine or producing certain good instead of
investing into something else.
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ACCOUNTING PROFIT V/S
ECONOMIC PROFIT
Accounting profit Economic profit
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revenue obtained
when all economic costs
are made
Always greater than
economic profit
Revenue deducted
from explicit cost


Obtained when revenue
exceeds opportunity cost
Always lesser than
accounting profit
Revenue deducted from
explicit and implicit cost

CONT.......
Things that are considered
are-leased asset, non-cash
adjustments or transactions for
depreciation, provisions,
allowances, and capitalizing
development cost


Things like opportunity
cost , residual value,
inflation level changes,
tax rates and interest
rates on cash flow
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