How to Calculate Accounting Profit
Accounting profit equals total revenue minus explicit costs, the actual money payments a firm makes for its inputs.
The Accounting Profit formula
Calculator
Enter price, units sold and each out-of-pocket cost to get total revenue, explicit costs and accounting profit.
What each unit sells for.
Only money that actually leaves the business counts. A forgone salary is implicit, so it stays out.
Revenue of $80,000 less $64,000 of explicit costs. Subtract implicit costs as well and you get economic profit, which is always the smaller of the two.
- Total revenue
- $80,000
- Explicit costs
- $64,000
- Profit as a share of revenue
- 20%
- Result
- Profit
Price multiplied by units sold.
Every out-of-pocket payment added together.
How much of each sales dollar survives explicit costs.
A positive accounting profit can still sit alongside an economic loss once implicit costs are counted.
How to calculate Accounting Profit, step by step
- 1Calculate total revenue. Multiply price by quantity sold: TR = P × Q.
- 2Add up explicit costs. Sum every out-of-pocket payment: wages, rent, materials, utilities, insurance, and interest paid.
- 3Subtract. Accounting profit = total revenue − explicit costs, leaving implicit costs out of this figure.
- 4Compare with economic profit. Subtract implicit costs as well if the question asks for economic profit, which is the smaller of the two whenever implicit costs exist.
Worked example: Accounting Profit
A bakery sells 20,000 loaves at $4 each, so total revenue = 4 × 20,000 = $80,000. Explicit costs are $30,000 of ingredients, $25,000 of wages, and $9,000 of rent, which total $64,000. Accounting profit = 80,000 − 64,000 = $16,000.
Accounting Profit questions
How is accounting profit different from economic profit?
Accounting profit subtracts only explicit costs, while economic profit subtracts implicit costs too, so economic profit is lower whenever the owner gives up something of value.
Is the owner's forgone salary an explicit cost?
No, a forgone salary is an implicit cost because no money changes hands, so it reduces economic profit but not accounting profit.
Can a firm have positive accounting profit and negative economic profit?
Yes, and it is common: if implicit costs exceed the accounting profit, the owner would earn more by putting those resources to their next best use.
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