What Is The Difference Between Zero Accounting Profit And Zero Economic Profit?
I have been using the web to try and find information on both zero accounting profit and zero economic profit and all I keep coming up with is zero accounting profit and economic vs accounting profit. Help please.
Zero accounting profit means total revenue – total explicit costs = $0.
Explicit costs are costs that you can account for with documents, not abstract figures without any justification.
Zero economic profit means total revenue – total explicit costs – total implicit costs = $0
Implicit costs are costs such as “I should have worked for someone instead of running a business”, very subjective and without good justification. It usually represents an owner’s personal resources when it comes to running a business (e.g. owner’s labour cost).
Accounting profit includes “paper” expenses such as depreciation and amortization where as ecomonic income does not.
Hope this helps.
I’ll put it in simple terms…
Zero Accounting Profit–means there is no dollar/monetary amount or value producing a profit. $0.00
Zero Economic Profit–means there are no benefits to reap or prosper from
(for instance if you had reached a $50 monetary / accounting profit you would receive 10 free books for each dollar…the free books were an Economic profit, or say a free lunch for every employee for breaking even (that would be an economic profit). Economic profit are benefits that you can gain an incentive like profit from.