Accounting Profit

Definition

Accounting profit is the financial measure that represents the difference between a company's total revenue and its explicit costs (such as wages, rent, and materials). It is calculated by subtracting explicit costs from total revenue.

Related terms

Economic Profit: Economic profit takes into account both explicit costs (like accounting profit) and implicit costs (opportunity costs). Implicit costs include things like foregone income from alternative uses of resources.

Fixed Costs: Fixed costs are expenses that do not change regardless of the level of production or sales. Examples include rent for a store or monthly loan payments.

Variable Costs: Variable costs are expenses that vary with changes in production or sales levels. They increase as more units are produced or sold. Examples include raw materials or hourly wages for workers.