The Difference Between Economic and Accounting Profit

Profit is simply the difference between total revenue and total cost. However, in light of the discussions above, it should be clear that “profit” for an economist is not exactly the same as calculated by an accountant because the concept of cost is different. An accountant looks at monetary revenues and explicit monetary outlays and calculates profit according to the generally accepted principles of accounting. That is, the difference between total revenue and accounting costs—explicit or out-of-pocket costs. The profit that is calculated by an accountant is named the accounting profit.

Accounting Profit = Total Revenue – Accounting Cost