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First of all, we need to understand what is explicit cost and implicit cost. Explicit cost mean real expenses, while implicit cost mean opportunity cost. In accounting profit, we only minus explicit cost, while in economic profit we minus explicit cost and implicit cost. therefore accounting profit is higher than economic profit.
What else can I help you with?
Is economic profit always less than accounting profit?
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.
Write not more than 3 lines explaining the different between the economic profit and accounting profit?
Accounting profits tend to be higher than economic profits as they omit certain implicit costs, such as opportunity costs.For example, if you invest $100,000 to start a business and earned $120,000 in profit, your accounting profit would be $20,000. Economic profit would add implicit costs, such as the opportunity cost of $50,000 should you have been employed instead during that period. As such, you would have an economic loss of $30,000 ($120,000 - $100,000 - $50,000).
Will economic profit exceed accounting profit?
Economic profit will never exceed accounting profit. The accountant will calculate total cost using only explicit costs (basically a transfer of money) that the firm makes. On the other hand, economists will factor in opportunity cost as well. For example, if a person takes their life's savings and invests it in a new company, the interest that the money could be making will be an opportunity cost for the firm, as well as the salary they could be earning at a different firm. This all means that economists will calculate higher costs, which means that economic profit is lower than accounting profit.
How can one determine economic profit by analyzing a graph?
To determine economic profit by analyzing a graph, one can look at the intersection point of the total revenue and total cost curves. Economic profit is calculated by subtracting total costs from total revenue. If the total revenue is higher than total costs, there is economic profit. If total costs are higher, there is economic loss.
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
Is economic profit always less than accounting profit?
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.
Write not more than 3 lines explaining the different between the economic profit and accounting profit?
Accounting profits tend to be higher than economic profits as they omit certain implicit costs, such as opportunity costs.For example, if you invest $100,000 to start a business and earned $120,000 in profit, your accounting profit would be $20,000. Economic profit would add implicit costs, such as the opportunity cost of $50,000 should you have been employed instead during that period. As such, you would have an economic loss of $30,000 ($120,000 - $100,000 - $50,000).
Will economic profit exceed accounting profit?
Economic profit will never exceed accounting profit. The accountant will calculate total cost using only explicit costs (basically a transfer of money) that the firm makes. On the other hand, economists will factor in opportunity cost as well. For example, if a person takes their life's savings and invests it in a new company, the interest that the money could be making will be an opportunity cost for the firm, as well as the salary they could be earning at a different firm. This all means that economists will calculate higher costs, which means that economic profit is lower than accounting profit.
Difference between accounting profit and economist's profit?
The accounting profit is the difference between total revenue and total cost excluding the economic cost (opportunity cost) of owner-supplied resources such as time and capital. At the other hand, In the economic cost, we include the opportunity cost in our calculations. · When total revenue exceeds both explicit and implicit costs, the firm earns economic profit. · Economic profit is smaller than accounting profit Another answer culed be: Economic Profit is slightly different than accounting profit, which merely the firm's total revenues minus its total costs. Economic profit is defined as total revenues minus total operating costs minus opportunity cost. Opportunity cost is defined as the cost of the profits you forgo by not doing another activity. For example the opportunity costs of opening a lemonade stand is equal to the difference between the accounting profits of the lemonade stand minus the accounting profits of a more profitable hot dog stand.
How can one determine economic profit by analyzing a graph?
To determine economic profit by analyzing a graph, one can look at the intersection point of the total revenue and total cost curves. Economic profit is calculated by subtracting total costs from total revenue. If the total revenue is higher than total costs, there is economic profit. If total costs are higher, there is economic loss.
What is the Difference between Normal profit and Economic Profit?
In economics, normal profit is often called the break-even point. It is the level of profit where all of the costs of your business, including the salary of the CEO, are covered. When a firm has normal profit but not economic profit, the total revenue of the firm equals the total cost of the firm. However, if a firm has economic profit, total revenue is higher than total cost.
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 a profit or loss?
A profit is an ammount of money higher than erju
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 factors contribute to a firm earning less than a normal profit?
Several factors can contribute to a firm earning less than a normal profit, including high competition in the market, high production costs, inefficient operations, and external factors such as changes in consumer preferences or economic conditions. These factors can lead to lower revenue and higher expenses, resulting in a firm earning less than a normal profit.
Accountants are reluctant to admit that accounting is based on nothing of ahigher order or sanctity than accounting conventions must take cognizance of the social and economic concept.discuss?
yo bayae
What is the future scope of Accounting in Nepal?
is information technology is higher valuation than banking and finance
