By DeVry University
December 22, 2021
4 min read
December 22, 2021
4 min read
Accounting profit is a widely used metric that helps accountants identify a company’s net profit, or earnings after explicit costs such as labor, raw materials, production and marketing are subtracted from its total income. Accounting profit represents actual profit, rather than the more theoretical calculations of economic profit.
Accounting profit paints a clearer picture of how a company is doing and how financially sustainable its operations are. With this number, accountants are able to determine whether a business is growing or if it’s losing money, and how quickly its profits are increasing or decreasing compared to a previous accounting period, such as a fiscal quarter or year.
In this article, we'll dive deeper into what accounting profit is by comparing it with the concept of economic profit. We’ll also go over how to calculate accounting profit and look at a few real-world scenarios for its use as we explore the following sections:
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