Accounting Profit

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DEFINITION of 'Accounting Profit'

A company's total earnings, calculated according to Generally Accepted Accounting Principles (GAAP), and includes the explicit costs of doing business, such as depreciation, interest and taxes.

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BREAKING DOWN '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).

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