How this calculator works
Accounting profit is the surplus left from total revenue after every explicit cost is paid: operation expenses, interest, depreciation and taxes. It is the figure that appears at the bottom of an income statement and the one that tax rules and loan covenants usually refer to. It differs from economic profit, which also deducts implicit costs such as the owner's time and the return given up on capital. A positive accounting profit can coexist with a negative economic profit when those implicit costs are large.
Formula
Accounting profit = total revenue - (operation expenses + interest + depreciation + taxes). Total explicit costs are the sum in the brackets. To solve for a single expense, subtract revenue less profit less the other expenses.
Worked example
Revenue of $500,000 with operation expenses of $300,000, interest of $20,000, depreciation of $30,000 and taxes of $50,000 gives explicit costs of $400,000. Accounting profit is $500,000 - $400,000 = $100,000.
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Frequently asked questions
Is accounting profit the same as net income?
They are close but not always identical. Accounting profit usually stops after tax, while net income can include discontinued operations, extraordinary items and other gains that are not part of ordinary operations. Read the statement to see which items are included.
Why is depreciation an explicit cost?
Depreciation spreads the cost of a long-lived asset over the periods that use it. The cash was paid when the asset was bought, but the expense belongs to the periods that benefit, so accounting profit charges it each year.
How does accounting profit differ from economic profit?
Accounting profit counts only costs that involve a payment to someone else. Economic profit also subtracts implicit costs, such as the salary the owner could earn elsewhere and the return on capital invested in the business.