Economic VsAccounting Costs

Economic VsAccounting Costs - Economic Vs Accounting Costs...

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Economic Vs Accounting Costs The distinction between economic costs and accounting costs is one between resource cost and dollar cost. Dollar cost refers to actual dollar payments and thus are accounting costs, while resource costs reflect the economic costs to the society whether it has cash payments or not. Part of economic cost is imputed and the other part is actual payments. In this case economic costs include accounting costs. Examples of costs without cash payments include: self-employed labor, self owned capital. Accounting cost = explicit dollar costs Economic cost = explicit dollar costs + implicit costs. Economic cost = Accounting cost + implicit costs Implicit costs are the costs of the self-employed labor, self-owned capital …etc. Economic Cost versus Accounting Cost Accountants: Take a retrospective view of a firm’s finances Their purpose is to evaluate past performance Equate cost with actual expenses and depreciation expenses Depreciation expenses are calculated according to tax rules
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Economic VsAccounting Costs - Economic Vs Accounting Costs...

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