Accounting Profit Calculator

Formula

The formula to calculate the Accounting Profit (AP) is:

\[ AP = R - EC \]

Where:

$ R $ is the revenue ($).
$ EC $ is the explicit costs ($).

The explicit costs (EC) can be calculated as:

\[ EC = OE + I + D + T \]

Where:

$ OE $ is operating expenses ($).
$ I $ is interest expense ($).
$ D $ is depreciation ($).
$ T $ is taxes ($).

Example

Let's say the revenue ($ R $) is $500,000, operating expenses ($ OE $) are $200,000, interest expense ($ I $) is $10,000, depreciation ($ D $) is $5,000, and taxes ($ T $) are $50,000. Using the formula:

\[ EC = 200,000 + 10,000 + 5,000 + 50,000 = 265,000 \]

Then,

\[ AP = 500,000 - 265,000 = 235,000 \]

So, the Accounting Profit ($ AP $) is $235,000.

What is Accounting Profit?

Accounting profit is the total revenue minus the explicit costs. It is a metric for how profitable a company is after expenses, taking into account explicit costs only and not extraneous costs.

Can accounting profits be negative? Yes, if the explicit costs of producing a good or service are larger than the revenue generated, the accounting profit can be negative.

Accounting Profit vs. Economic Profit: Accounting profit is the difference between revenue and explicit costs, while economic profit also considers implicit costs.