The difference between Accounting and Economic Profit

Assignment # 1

1. Why should managers use study supply, demand and their elasticities?

2. What is the difference between Accounting and Economic Profit?

Case Study:

3-2 House Closing      

Youve entered into a contract to purchase a new house, and the closing is scheduled for next week. Its typical for some last-minute bargaining to occur at the closing table, where sellers often try to tack on extra fees. You have three options for the closing: (1) attend yourself, (2) send an attorney authorized to close only per the previously negotiated terms, or (3) pre-sign all the closing documents per the current terms and not attend the closing. Consider each bargaining position; which position would you go with and why?

KEY TAKEAWAYS BEFORE ATTEMPTING THIS ASSIGNMENT

What is the difference between Accounting and Economic Profit?

Introduction

Accounting profit and economic profit are two very different concepts. Accounting profits are made up of all the revenues from the sale of goods and services minus all costs. Economic profits are made up of revenues from selling products or services, after subtracting costs that don’t directly relate to the selling of these products or services. So what’s the difference between accounting profit and economic profit? Why would you want to know about this? Let’s take a look at how they’re calculated so we can better understand why knowing them matters:

What is the difference between accounting and economic profit?

Accounting profit is a measure of how much money can be made if you had additional resources at your disposal. It’s the difference between accounting profit and opportunity cost, which is the value of what would have been produced by those resources if they were used for their highest and best economic use (i.e., production).

Economic profit is a measure of how much money can be made given current prices and market conditions (i.e., supply and demand). Economic profits are calculated as follows:

Accounting profit is made up of all the revenues from the sale of goods and services minus all costs.

Accounting profit is the amount of money that goes into your bank account after you sell goods and services. It’s made up of revenues minus all costs, including labor and materials. The difference between accounting profit and economic profit is that the latter includes a capitalized cost of depreciation on fixed assets, which is subtracted from gross margin before calculating net income.

Economic profits are made up of revenues from selling products or services, after subtracting costs that don’t directly relate to the selling of these products or services.

Economic profits are made up of revenue from selling products or services, after subtracting costs that don’t directly relate to the selling of these products or services. Revenue is the money you make from selling products or services and it includes all cash inflows from customers (including sales), T&E costs, interest income and any other sources that contribute to your bottom line.

Costs can be classified into three categories: direct cost, non-direct costs, and capital expenditure. Direct costs are those that directly relate to making your product or service; for example wages paid by your company for employees who create the product; rent on space where your factory is located; utilities used in production processes such as electricity and water usage etc., capital expenditure includes long term investments such as purchasing new equipment which will last longer than 1 year but still being depreciated over time using straight line depreciation method rather than double declining balance method because these types of investments require significant financial resources upfront before they generate any returns later downline when production levels increase significantly due

Accounting profit (revenues minus cost) is useful because it shows you how much money you can make in a particular period, while economic profits (revenues minus cost plus non-economic costs) is useful because it tells you how much money can be made if you had additional resources at your disposal.

Accounting profit (revenues minus cost) is useful because it shows you how much money you can make in a particular period, while economic profits (revenues minus cost plus non-economic costs) is useful because it tells you how much money can be made if you had additional resources at your disposal.

Accounting profit is also important because it shows a company’s financial position and enables them to plan future operations. Economic profit is more difficult to calculate since it involves taking into account many factors, including fixed costs and variable costs.

Conclusion

Accounting profits are useful because they allow you to compare your company’s performance with that of its competitors. However, economic profits can be more useful since they represent how much money could be made if you had additional resources at your disposal.

 

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