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Accounting Profit vs Economic Profit Calculator
Compute your business profit two ways: accounting profit (revenue minus explicit costs) and economic profit (also minus opportunity cost). See the difference, the classification, and the step-by-step breakdown — with an SME example and a concept comparison table.
Note: this calculator is a computing aid for educational purposes. Results depend entirely on the numbers you enter and are not financial, accounting, or tax advice.
The explanation above is informational and educational, not a recommendation to continue, change, or close the business. For important financial decisions, consider consulting an accountant or professional financial planner.
Step breakdown
Bar chart
Concrete Example: Warung Kopi (per Year)
Pak Budi runs a warung kopi (coffee stall). Here are his business figures for one year:
Item
Amount
Total revenue
Rp 120,000,000
Explicit costs
2 employees' wages
Rp 60,000,000
Venue rent
Rp 24,000,000
Raw materials (coffee, sugar, milk)
Rp 18,000,000
Total explicit costs
Rp 102,000,000
Accounting profit = 120,000,000 − 102,000,000
Rp 18,000,000
Opportunity cost
Forgone salary (previously earned Rp 4 million/month)
Rp 48,000,000
Own capital interest (Rp 60 million × 10%)
Rp 6,000,000
Total opportunity cost
Rp 54,000,000
Economic profit = 18,000,000 − 54,000,000
-Rp 36,000,000
Pak Budi's income statement shows a profit of Rp 18,000,000 — looks profitable. But after accounting for opportunity cost, his economic profit is negative Rp 36,000,000: by the numbers, his time and capital would do better if he stayed employed and invested the capital. This is the trap only visible through the economic profit lens.
Concept Comparison Table
Aspect
Accounting Profit
Economic Profit
Normal Profit
Formula
Revenue − explicit costs
Revenue − explicit costs − implicit costs
Economic profit = 0
Costs counted
Only explicit costs (cash out)
Explicit + implicit (opportunity cost)
Not a profit type — a single point condition
Main use
Financial reporting and tax calculation basis
Economic decision analysis: whether resources are used in their best alternative
Benchmark for the business's economic break-even
How the three relate
Economic profit = accounting profit − opportunity cost, so economic profit ≤ accounting profit. When accounting profit exactly equals its opportunity cost, the business is at normal profit.
Can it be negative?
Yes (called a loss)
Yes — and this can happen even when accounting profit is positive
No — normal profit is a single point (zero)
Frequently Asked Questions (FAQ)
What is the difference between accounting profit and economic profit?
Accounting profit is total revenue minus explicit costs — costs actually paid, such as employee wages, venue rent, and raw materials. Economic profit is accounting profit minus implicit costs (opportunity cost), such as the salary forgone by choosing entrepreneurship or the interest the capital could earn if invested elsewhere. Because it counts more costs, economic profit is always less than or equal to accounting profit.
What are explicit costs and implicit costs (opportunity cost)?
Explicit costs are real, recorded cash outlays — for example employee wages, shophouse rent, electricity bills, and raw materials. Implicit costs involve no cash outflow but represent the value of the best forgone alternative: for example the monthly salary given up to focus on the business, the rent that could be earned if an owned shophouse were leased to someone else, or the deposit interest on the capital used by the business.
Why can economic profit be negative while accounting profit is positive?
Because opportunity cost can exceed the accounting profit. Example: revenue of Rp120,000,000 minus explicit costs of Rp102,000,000 gives an accounting profit of Rp18,000,000. But if the owner forgone a salary of Rp48,000,000 and capital interest of Rp6,000,000, total opportunity cost is Rp54,000,000, so economic profit = Rp18,000,000 − Rp54,000,000 = −Rp36,000,000. By the numbers, that time and capital would do better in another alternative.
What is normal profit?
Normal profit is the condition where economic profit is exactly zero — the business earns precisely its opportunity cost, no more and no less. This is called the economic break-even point: the owner does just as well as the best forgone alternative. Positive economic profit means above normal, negative means below normal.
What is the difference between sunk cost and opportunity cost?
Sunk cost is money already spent and unrecoverable — for example renovation costs already paid — so it is irrelevant to future decisions because it cannot be changed. Opportunity cost is the value of the alternative forgone by a choice, and it matters for decisions because it compares options that can still be taken. The common mistake is letting sunk cost influence a decision on the grounds that the capital is already spent, when what should be compared is the forward outlook against the alternative.
When is the economic profit concept relevant to business decisions?
Economic profit helps assess whether time, capital, and assets are used in their best alternative — information invisible in an ordinary income statement. In economic theory, persistently negative economic profit signals that resources would do better elsewhere. But real decisions such as continue, pivot, or shut down also involve non-numeric factors like growth prospects, risk, and personal preference, so this figure is best used as one input among others, not the sole decider.
Is accounting profit what is used for tax reporting?
Yes, basically. Financial statements and tax computations start from accounting profit — revenue minus explicit costs — with fiscal adjustments under applicable tax rules. Economic profit is an analytical concept in economics; it does not appear in financial statements and is not used as a tax base.
How do I use the calculator on this page?
First, enter total revenue for one consistent period, e.g., per month or per year. Second, list all explicit costs in the first list using the add-cost button. Third, list all opportunity costs in the second list, or use the preset buttons for common items. Finally, press Calculate: the calculator shows accounting profit, economic profit, the difference between them, the result classification, the step breakdown, and the bar chart. The Load SME example button auto-fills the warung kopi example.
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