Accounting Profit Calculator
From total revenue and explicit costs, work out the accounting profit shown on the income statement.
Input Data
Results
At a glance:Accounting profit = total revenue - explicit costs (actual cash outlays recorded in the accounts: materials, wages, rent, utilities, interest, tax). It excludes implicit (opportunity) costs, so it usually exceeds economic profit. It is the basis of external reporting, tax filing and performance evaluation.
Formula
Accounting profit = total revenue − explicit costs.
$$\\text{Accounting profit} = \\text{Total revenue} - \\text{Explicit cost}$$$$\\text{Economic profit} = \\text{Accounting profit} - \\text{Implicit cost}$$How to Use
- Enter total revenue for the period.
- Enter the explicit (paid, recorded) costs.
- View the accounting profit.
Accounting profit at fixed total revenue HK$2,000,000 under different explicit costs
| Total revenue | Explicit costs | Accounting profit | Read |
|---|---|---|---|
| HK$2,000,000 | HK$1,200,000 | HK$800,000 | Good cost control, healthy profit |
| HK$2,000,000 | HK$1,400,000 | HK$600,000 | Stable profit |
| HK$2,000,000 | HK$1,600,000 | HK$400,000 | Moderate, costs high |
| HK$2,000,000 | HK$1,800,000 | HK$200,000 | Thin, weak buffer |
| HK$2,000,000 | HK$2,000,000 | HK$0 | Break-even |
Case Studies
Case 1: Book profit, but opportunity cost eats it all
Mr Chan quit his HK$50,000/month job to run a small shop full-time. Year 1 revenue HK$2,400,000, explicit costs (goods, rent, part-time wages, utilities) HK$1,700,000, accounting profit = 2,400,000 − 1,700,000 = HK$700,000 — impressive on paper.
But add implicit costs: foregone salary ≈ HK$600,000, plus ≈HK$40,000 a year his HK$1,000,000 own capital could earn in safe products. Implicit costs ≈ HK$640,000. Economic profit = 700,000 − 640,000 ≈ HK$60,000.
Conclusion: the shop books 700k, but after counting 'no job, no investment' opportunity cost, it only beats alternatives by about 60k. Accounting profit looks rich; economic profit reveals how thin the true excess return is.
Case 2: Same revenue, cost structure decides profit
Two peer shops both earn HK$2,000,000/year. Shop A controls costs tightly, explicit costs HK$1,400,000, accounting profit = 2,000,000 − 1,400,000 = HK$600,000; Shop B has high rent and wages, explicit costs HK$1,800,000, accounting profit only HK$200,000.
Same turnover, Shop A's accounting profit is 3x Shop B's — purely from explicit-cost control. This shows that in industries with similar revenue, cost management is often the key to wider margins. To raise accounting profit, watch every paid explicit cost, not just top-line growth.
FAQ
What is the difference between accounting and economic profit?
Accounting profit deducts only explicit costs (actual payments) — the profit on the income statement. Economic profit also deducts implicit costs (opportunity cost of own resources). So accounting profit is usually larger. Accounting profit shows book earnings; economic profit shows whether the business truly beats the next-best alternative.
What are implicit costs?
Implicit costs are the opportunity cost of resources used — no cash paid, not recorded, but a forgone return. Examples: the owner's unpaid labour (foregone salary), and returns on own capital if invested elsewhere. They do not affect accounting profit but matter for economic profit and decisions.
Does positive accounting profit mean the business is worth continuing?
Not necessarily. A positive figure only means revenue covers actual payments; counting implicit costs, economic profit could be zero or negative, meaning better returns elsewhere. Assess 'worth continuing' with economic profit too.
What counts as explicit costs?
Explicit costs are actual payments with a clear accounting entry: direct costs (materials, goods, direct labour), operating expenses (rent, utilities, admin salaries, marketing, insurance, travel), finance costs (interest), depreciation and amortisation (non-cash but recognised), and taxes. Anything traceable to a journal entry is explicit; implicit costs (unpaid owner labour, own-capital return) are not.
Is accounting profit the same as net income?
In most contexts, 'accounting profit' is closest to bottom-line net income (after all explicit costs including interest and tax). The income statement has layers — gross profit, operating profit/EBIT, pre-tax profit/EBT, then net income. This calculator uses the broadest definition: total revenue minus all explicit costs. Confirm you compare the same profit layer when benchmarking.
Related Tools
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.