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No economic profit is not always less than accounting profit; However, if accounting profit is less than economic profit the business would exit the industry.
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Differentiate between normal profit and economic profit?
Economic profit is when revenue exceeds total cost of inputs. Normal profit, on the other hand, is net profit less costs.
What is the difference between Accounting profit and Economic profit?
economic profit & accounting profit:Economists measure a firm's economic profit. Accountants measure the accounting profit.Economic cost=total revenue-explicit cost-implicit cost. accounting profit= total revenue- explicit cost.Economic profit is smaller than accounting profit. - Arnab____________________________As per my understanding :(Jignesh Patel)Accounting profit involves non cash transactions/adjustments for depreciation, allowances, provisions etc. and application of relevant accounting standards such as capitalising development costs, leased assets etc. And importantly accounting profit is calculated for a period of time. It is calculated for whole of the entities business.Where as, Economic Profit is calculated from the perspective of economist over long run. It means the profit in real terms. It is normally calculated for the purpose of project appraisal. This includes calculating and matching the projects Cash Inflows with Cash Outflows at its present value by discounting them at the companies required cost of capital. This task requires consideration and inclusion of both financial and non-financial risk factors that affects the profits. Relevant adjustments to the above cashflows are required. For example, it considers opportunity costs, residual value, changing working capital requirements, changes in inflation level, tax rates, interest rates etc. on the cashflows over the period of the project. Obviously, this project life can be broken down into annual projections parallel to the accounting year._____________________________In the context of general management accounting, the difference between accounting profit and economic profit is simply that economic profit takes into account opportunity cost (the cash flows we gave up by choosing to devote scarce resources to one project rather than another). The basis for the notion of opportunity cost is that, since we don't have unlimited resources to invest, we are not able to invest in every single opportunity for profit, and so we must choose which projects we will invest in. And since we don't have to resources to undertake every profitable project, we also have to choose to reject some opportunties that would also be profitable. But when we reject one opportunity in favor of another, we also give up any return we would have gotten by accepting the opportunity. That profit we give up is the opportunity cost of not accepting that opportunity.Economic Profit equals Accounting Profit less Opportunity CostTo illustrate:On January 1, I call my $50,000/year job and tell them I'm quitting to start my own company. I then spend $100,000 of my own money to start and operate the new business over the first year ,and I spend all of my time running the business. At the end of the year, I have revenues of $120,000 for the year, and $100,000 in expenses for the year.My accounting profit for the year is revenues less expenses, or $120,000 - $100,000 $20,000 accounting profit. (Taxes and discounting are not figured into this example, in order to keep it simple). Making $20,000 on an investment of $100,000 looks like a good return - until I consider economic profit.But if I had just stayed in my old job, I would have made $50,000 for investing the exact same amount of time as I did running my business. The $50,000 salary I gave up by choosing to go into my own full time business (since there is only one me, and I couldn't do both) is the opportunity cost of my decision to go into business for myself. To calculate my economic profit or loss, I must deduct from my $20,000 accounting profit the $50,000 I gave up to see the real results of my decision in economic terms.As it turns out, my accounting profit of $20,000 is actually an economic loss, when I factor in what I would have realized if I had chosen to remain in my old job.Accounting Profit less Opportunity Cost equals Economic Profit or (Economic Loss)$20,000 less $50,000 equals $(30,000) economic lossyes that's all
What is the relation between economic development and sustainability?
The more economic development that occurs, the less sustainable the development is. Rapid growth is done at the expense of developing sustainable practices. Profit requires maximizing exploitation of resources and labor.
Is a business making a profit when the revenue is less than its cost?
NO, if reveneu is less then cost then company is in loss as following forumula: Net profit (loss) = Revenue - Cost
How consumer demand affect business?
if demand for anything is more than that product will sell more, if there is no demand for an item then that will not sale.so if sales are more there would be more profit ,if sales are less profit will also less. more profit means a good business and less profit means that business is not in a good position. i hope now u can understand it.shortly more consumer demand more good business,less consumer demand less business.
Differentiate between normal profit and economic profit?
Economic profit is when revenue exceeds total cost of inputs. Normal profit, on the other hand, is net profit less costs.
What is the difference between Accounting profit and Economic profit?
economic profit & accounting profit:Economists measure a firm's economic profit. Accountants measure the accounting profit.Economic cost=total revenue-explicit cost-implicit cost. accounting profit= total revenue- explicit cost.Economic profit is smaller than accounting profit. - Arnab____________________________As per my understanding :(Jignesh Patel)Accounting profit involves non cash transactions/adjustments for depreciation, allowances, provisions etc. and application of relevant accounting standards such as capitalising development costs, leased assets etc. And importantly accounting profit is calculated for a period of time. It is calculated for whole of the entities business.Where as, Economic Profit is calculated from the perspective of economist over long run. It means the profit in real terms. It is normally calculated for the purpose of project appraisal. This includes calculating and matching the projects Cash Inflows with Cash Outflows at its present value by discounting them at the companies required cost of capital. This task requires consideration and inclusion of both financial and non-financial risk factors that affects the profits. Relevant adjustments to the above cashflows are required. For example, it considers opportunity costs, residual value, changing working capital requirements, changes in inflation level, tax rates, interest rates etc. on the cashflows over the period of the project. Obviously, this project life can be broken down into annual projections parallel to the accounting year._____________________________In the context of general management accounting, the difference between accounting profit and economic profit is simply that economic profit takes into account opportunity cost (the cash flows we gave up by choosing to devote scarce resources to one project rather than another). The basis for the notion of opportunity cost is that, since we don't have unlimited resources to invest, we are not able to invest in every single opportunity for profit, and so we must choose which projects we will invest in. And since we don't have to resources to undertake every profitable project, we also have to choose to reject some opportunties that would also be profitable. But when we reject one opportunity in favor of another, we also give up any return we would have gotten by accepting the opportunity. That profit we give up is the opportunity cost of not accepting that opportunity.Economic Profit equals Accounting Profit less Opportunity CostTo illustrate:On January 1, I call my $50,000/year job and tell them I'm quitting to start my own company. I then spend $100,000 of my own money to start and operate the new business over the first year ,and I spend all of my time running the business. At the end of the year, I have revenues of $120,000 for the year, and $100,000 in expenses for the year.My accounting profit for the year is revenues less expenses, or $120,000 - $100,000 $20,000 accounting profit. (Taxes and discounting are not figured into this example, in order to keep it simple). Making $20,000 on an investment of $100,000 looks like a good return - until I consider economic profit.But if I had just stayed in my old job, I would have made $50,000 for investing the exact same amount of time as I did running my business. The $50,000 salary I gave up by choosing to go into my own full time business (since there is only one me, and I couldn't do both) is the opportunity cost of my decision to go into business for myself. To calculate my economic profit or loss, I must deduct from my $20,000 accounting profit the $50,000 I gave up to see the real results of my decision in economic terms.As it turns out, my accounting profit of $20,000 is actually an economic loss, when I factor in what I would have realized if I had chosen to remain in my old job.Accounting Profit less Opportunity Cost equals Economic Profit or (Economic Loss)$20,000 less $50,000 equals $(30,000) economic lossyes that's all
Which will increase the profits of the business with example?
To answer this, first one must know whether you refer to accounting profit or to economic profit.Accounting profits are basically the difference between nominal pecuniary prices and nominal pecuniary costs. For example, if a business borrows $100 at 10% interest to produce widgets which it finishes and sells a year later for $120, then the accounting profit is $120 - $100 * 1.1 = $10.But if there was price inflation over that same year, did the business make a real profit of $10? Sometimes there is an accounting profit purely due to inflation, and the business actually loses purchasing power while making that supposed profit. For example, if the widgets increased in price only because of a general 20% inflation, then the business lost the purchasing power that went to pay-off the cost of borrowing the money! They made an accounting profit, on which the government is going to tax them, but they are worse-off than they started! Price inflation can increase accounting profit.Modern economics has a different notion of profit. First, they want to adjust for any price inflation or deflation. Second, they call two other things "profit".The first is "normal profit". The idea here is that someone who goes into one business could have gone into another, so that going into one business means giving-up the profit that would have been made going into the other. Viewed that way, the forgone profit is actually a cost. One really doesn't gain by going into a business unless one does better than one would have if going into another. There are some controversies about what are the sources of normal profit. Some economists see them as really the value of delaying consumption in order to produce; others associate them with the contribution of management. If the former is true, then normal profits would increase if over-all productivity increased, or if people became more anxious to consume. If the managerial theory is correct, then an improvement in management (over-all through the economy) would increase normal profits.Then there's "super-normal profit", better known as "economic profit", which is any profit above normal profit. When economists speak to each other, if they say just "profit" then they mean economic profit. Basically, economic profit is possible when the economy is out of equilibrium, so that some items sell for more than they cost, after we adjust for price inflation or deflation and after we subtract normal profits. For example, let's say that people suddenly discover that widgets make teeth whiter and sexier. Until everyone adjust for this -- so that the suppliers to the widget maker don't increase their prices and other firms don't rush-in to make competing widgets -- the widget business will get higher prices while paying the old costs If there is no fully offsetting price inflation, then economic profit will imply accounting profit. If there is a price deflation, then there could be economic profit with accounting loss. Pre-modern economics, which attempts to explain price as determined by cost, frequently sees profit as purely a result of expropriation. For example, Marxists see profit as a result of giving employees less than the value of their labor; Georgists see profit as a result of claiming property in land. Under such theories, profit would increase if the means of expropriation increased, or if the productivity of the expropriated resource were to increase.
What is the relation between economic development and sustainability?
The more economic development that occurs, the less sustainable the development is. Rapid growth is done at the expense of developing sustainable practices. Profit requires maximizing exploitation of resources and labor.
What is the consistency concept in accounting?
compre the following two income statement prepare foor a sole trade who wishes to show themto the bank manager to justify continuation of an overdraft facility YEAR END 3` DEC. 20X7 $ $ SALE REVENUE 25150 LESS:production cost 10000 seling admin 7000 17000 gross profit 8150 less interset 1000 7150 YEAR END 31 DEC 20X8 sale revenue less selling cost 221165 less production cost 10990 gross profit 11175 lss admini interest 31175 net profit 8000 which accounting concept is bering ignored here . justify your choice
What is the important of computerized accounting to manual?
Computerized accounting is quicker and easier than manual accounting and less subject to unintentional error.
Formula for calculating net profit?
Sales Less: Cost of sales Gross Profit Less: Admin Expenses Selling Expenses Other Expenses Net Profit
Calculation of Profit After Tax Margin?
Gross Profit or Earning Before Interest and Tax (EBIT) Less : Interest Earning Before Tax (EBT) Less : Tax Net Profit or Profit After Tax (PAT)
Why did the parents send away there children to be slaves?
That would be for economic reasons. There are two immediate benefits: 1. One less mouth to feed. 2. Profit realized from the sale of the child.
Is India a more or less economic country?
It is a less economic country because the states there are mostly farming and only the cities have no farms so it is a less economic country.
What is an accounting loss?
It is when revenues are less than expenses.
How do you calculate GP Gross Profit when the revenue is less than the costs?
If revenue is less than costs, the gross profit is negative -- it is not a profitable company.
