Accounting Profit


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).

  1. Implicit Cost

    A cost that is represented by lost opportunity in the use of ...
  2. Explicit Cost

    A business expense that is easily identified and accounted for. ...
  3. Opportunity Cost

    1. The cost of an alternative that must be forgone in order to ...
  4. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  5. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  6. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
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  1. Can working capital be depreciated?

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  2. Do working capital funds expire?

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  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
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