Accounting Profit VS Economic Profit

What is the accounting profit?

If you calculate the total earning of a company on the basis of GAAP, then this thing is known as accounting profit. Here, GAAP stands for generally accepted accounting principles. In the accounting profit of a company, all the explicit costs of doing a business are also included. In the explicit costs of a company, there come all the expenses of operating a business, interests and taxes. The formula to calculate the accounting profit of a company is given below; 
Accounting Profit = Total Revenue of the Company –Explicit costs

What is economic profit?

The economic profit is different from the accounting profit. We can easily calculate the economic profit of a company easily by differentiating between the output revenue and input revenue. The output revenue is that which we get from the sales. On the other hand, the input revenue is that which we use to run a business. In order to calculate an economic profit, you will have to get an idea of the opportunity costs. These opportunity costs are earned from the total earned revenues. The formula to calculate an economic profit is given below;

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

If you are not able to understand the difference between accounting profit and economic profit, then you can get help from academic writing services. The possible difference between accounting profit and economic profit is explained below;

1) First of all, there is a clear difference between the meanings of an economic profit and an accounting profit. The accounting profit refers to the net income that a particular company earns during a particular accounting year. On the other hand, the economic profit refers to the surplus that a particular company gains after the deduction of total costs from total revenue.

2) If we take a review of an accounting profit and an economic profit, then we come to know that there is also a clear difference between their relevance. An accounting profit is a practical form of the financial perspectives. On the other hand, an economic profit provides a clear picture of the certain aspects that are estimated during the business process.

3) There is also a clear difference between the benefits that we gain from the economic profit and accounting profit. An accounting profit reflects all the profits that are related to the profitability of the firm. On the other hand, an economic profit highlights the efficiency of the resources that are allocated by a company.

4) Two different formulas are used to get an estimation of the accounting profit and economic profit. If we take a review of the accounting profit, then we come to know that an accounting profit is gained by subtracting the explicit costs from the total revenue. On the other hand, if we take a review of the economic profit, then we come to know that economic profit is gained by subtracting explicit and implicit costs from the total revenue.

5) An accounting profit is known as normal profit. On the other hand, in the economic profit, there involves taxes and other expenses of the company.

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