These are the amounts that a firm actually pays out to other people in the process of producing their product.
Economic costs are not typically recorded in the accounting books of companies. Accountants focus on the hard, explicit costs from operations during the year when creating financial reports. Economic costs are usually considered when a company must make a strategic decision involving opportunity. To calculate the accounting profit for the fiscal year, accountants look only to the accounting costs and profit of the company. Accountants do not need economic cost information to create their income statement. For example, accountants are not concerned if the company could have made $3,000 per month from leasing its building for a total of $36,000 during the fiscal year -- the $36,000 does not come out of the gross profit for the compan (Answer #1). Economic cost is a more comprehensive idea that accounting costs. Accounting costs only include what economists call explicit costs.. These are the amounts that a firm actually pays out to other people in the process of producing their product. Hence, the difference between the economic cost and accounting cost is that the economic cost comprises the opportunity cost, while the accounting cost does not. Although the accounting costs are very important to company owners, the economists are mainly focused on economic costs rather than accounting costs. Example is attending College(Economic Cost=accounting cost + opportunity cost): The opportunity cost is the are the four years paycheck you can earn if you weren't in school. -The accounting cost is the tuition, books, housing, food,, and other miscellaneous things your owing now. The opportunity cost is the activity you give up. Economic cost is what it actually costs to make something. For example, if I am making cars, I have to pay for the steel, fabric, fittings, plus pay my workers and, perhaps, advertising, shipping, distribution, &c. These are economic costs. The accounting cost reveals the expenses with production, while the economic costs may be evaluated as the total of accounting costs and opportunity costs. The opportunity cost is associated with every decision or action and it represents the value of a resource that is given in exchange of something else. Hence, the difference between the economic cost and accounting cost is that the economic cost comprises the opportunity cost, while the accounting cost does not. Although the accounting costs are very important to company owners, the economists are mainly focused on economic costs rather than accounting costs. Noun [edit]. accounting cost ‎(plural accounting costs). ( 1 economics) The total amount of money or goods expended in an endeavour. 2  It is money paid out at some time in the past and recorded in journal entries and ledgers.  (July 2008). Economic cost is the gains and losses in money, time and resources of one course of action compared to another. The comparison includes the gains and losses precluded by taking a course of action, as the those of the course taken itself. Economic cost differs from accounting cost because it includes opportunity cost. So for the two to four years an individual spends in school, the opportunity cost includes the money that one could have been making at the best possible job. The economic cost of college is the accounting cost plus the B can be made for $75 and sold for $100. The accounting cost of A is $50 and the accounting cost of B is $75. The economic cost of A is 50+(100-75)=75 and the economic cost of B is 75+(100-50)=125. In other words, the opportunity cost is represented by the foregone accounting profit that could be earned by the project not taken As an example, consider the economic cost of attending college. The accounting cost of attending college includes tuition, room and board, books, food, and other incidental expenditures while there. The opportunity cost of college also includes the salary or wage that otherwise could be earned during the period. So for the two to four years an individual spends in school, the opportunity cost includes the money that one could have been making at the best possible job. The economic cost of college is the accounting cost plus the opportunity cost.
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what is accounting cost in economics