Accounting Profit

AAA

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.

INVESTOPEDIA EXPLAINS '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).

RELATED TERMS
  1. Explicit Cost

    A business expense that is easily identified and accounted for. ...
  2. Implicit Cost

    A cost that is represented by lost opportunity in the use of ...
  3. Profit

    A financial benefit that is realized when the amount of revenue ...
  4. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  5. Opportunity Cost

    1. The cost of an alternative that must be forgone in order to ...
  6. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
RELATED FAQS
  1. How can I calculate the operating cash flow ratio on Excel?

    The operating cash flow ratio measures a company's short-term liquidity by relating its operational cash flow to its current ... Read Full Answer >>
  2. Which financial statement can I find noncurrent assets on?

    The value of a company's noncurrent assets is located on its balance sheet. Noncurrent assets are a company's resources that ... Read Full Answer >>
  3. What is the difference between noncurrent assets and noncurrent liabilities?

    Noncurrent assets are a company's assets that are not expected to be liquidated within one fiscal year, while noncurrent ... Read Full Answer >>
  4. What are some common examples of noncurrent assets?

    Noncurrent assets are not expected to be liquidated within one year. Some common examples of noncurrent assets are tangible ... Read Full Answer >>
  5. How does operating leverage affect business risk?

    In finance, companies assess their business risk by capturing a variety of factors that may result in lower-than-anticipated ... Read Full Answer >>
  6. How does a contra-asset account differ from a contra-liability account?

    A contra-asset account is an asset account with a credit balance and reduces the total assets on a company's balance sheet, ... Read Full Answer >>
Related Articles
  1. Options & Futures

    All About EVA

    Looking for a formula to determine whether a company is creating wealth? Time to learn all about economic value added.
  2. Markets

    Understanding Economic Value Added

    Discover the simplicity of this important valuation metric. We reveal its underlying ideas and examine each of its components.
  3. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  4. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  5. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS

    We explain why Last-In-First-Out is banned under IFRS
  6. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  7. Economics

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.
  8. Economics

    Explaining Property, Plant and Equipment

    Property, plant and equipment are company assets that are vital to business operations, but not easily liquidated.
  9. Economics

    How to Calculate Trailing 12 Months Income

    Trailing 12 months refers to the most recently completed one-year period of a company’s financial performance.
  10. Economics

    What is Unearned Revenue?

    Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser.

You May Also Like

Hot Definitions
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  2. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  3. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  4. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  5. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
Trading Center