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. Profit

    A financial benefit that is realized when the amount of revenue ...
  2. Revenue Recognition

    An accounting principle under generally accepted accounting principles ...
  3. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
  4. Explicit Cost

    A business expense that is easily identified and accounted for. ...
  5. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  6. Implicit Cost

    A cost that is represented by lost opportunity in the use of ...
Related Articles
  1. All About EVA
    Options & Futures

    All About EVA

  2. Understanding Economic Value Added
    Markets

    Understanding Economic Value Added

  3. Material Adverse Effect A Warning Sign ...
    Markets

    Material Adverse Effect A Warning Sign ...

  4. Footnotes: Early Warning Signs For Investors
    Retirement

    Footnotes: Early Warning Signs For Investors

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center