WHAT IS THE DIFFERENCE BETWEEN ECONOMIC COST AND ACCOUNTING COST

Accounting cost is not the same as economic cost.

Accounting cost is the amount that a company pays for the factors of production that it uses.

It is an expense incurred by a business for which monetary compensation is made.

Accounting costs are explicit as they can be easily calculated and observed.

Examples of accounting costs are rental payments, cost of supplies, advertising expenses, travel expenses and labour costs

Accounting costs are sometimes known as explicit costs.

On the other hand, economic cost includes accounting costs plus the opportunity cost of taking a particular decision.

The value of the best alternative forgone is added to the explicit cost to obtain the economic cost.

For instance, renting a store, stocking the store with goods, etc., are all accounting expenditures associated with starting a supermarket.

The economic cost of the supermarket would be the accounting costs plus the income that the shop could have earned if it was used for another business.

Economic cost includes explicit costs as well as the implicit cost of performing economic activity.

An explicit cost is a cost that directly reduced the net income of a business.

Explicit cost is also called accounting cost.

Implicit cost is the opportunity cost of carrying out a specific economic activity.

It is the monetary value of the alternative forgone.

The economic cost is the result of adding explicit cost and implicit cost.

The difference between economic cost and accounting cost can be summarized below:

1. Accounting cost is used to calculate net income, whereas economic cost determines market stay or shutdown 

2. Economic cost includes both explicit cost and implicit cost, whereas accounting cost only includes explicit cost.

3. Economic cost is not only measured in monetary terms. It is measured In other terms other than money

In contrast, accounting cost is only measured in monetary terms.

4. Economic cost is the monetary value of the income that a firm would have earned if it had deployed its factor of production elsewhere. Accounting cost is the normal expenditure made by a firm for using its factors of production.

5. Economic cost is employed only in the calculation of economic profit whereas accounting cost is used to calculate both accounting profit and economic profit.

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