Section 1: Explicit Costs and Implicit Costs
Explicit costs are direct, out-of-pocket expenses that businesses incur and explicit and implicit costs record in their financial statements. These are often referred to as accounting costs because they are readily identifiable and tracked within accounting records. Explicit costs appear as expenses on a company’s income statement, directly impacting its reported net income. Companies must, of course, look at accounting profit to assess the profitability of their business. Accounting Crash Courses This process begins with identifying the various forms of implicit costs relevant to the business, such as opportunity costs, depreciation of owned assets, and time investment.Explicit costs are tracked within the accounting records, because they involve the payment of cash to third parties.By examining the nuances of implicit and explicit costs, readers will gain valuable insights...