Accounting profit, also known as book profit, is the net income reported on a company’s income statement under generally accepted accounting principles (GAAP). It represents the difference between a company’s total revenue and its total explicit costs and expenses for a specific period. Accounting profit is a key financial metric that provides insight into a company’s financial performance during a given time frame.

The formula for calculating accounting profit is:

\[ \text{Accounting Profit} = \text{Total Revenue} – \text{Total Explicit Costs and Expenses} \]

Here are the key components:

1. **Total Revenue:**
– Total revenue includes all sales, fees, and other income generated by a company from its primary business activities. This can include revenue from the sale of goods or services, interest income, and other sources of income.

2. **Total Explicit Costs and Expenses:**
– Explicit costs and expenses are the direct and indirect costs associated with producing goods or services and operating a business. These costs include raw materials, labor, rent, utilities, marketing expenses, and other operating expenses. Explicit costs are costs that are easily identifiable and quantifiable.

The resulting accounting profit is an important indicator of a company’s financial performance. It represents the amount of money the company has earned from its primary business operations after deducting all explicit costs and expenses.

It’s important to note that accounting profit may not provide a complete picture of a company’s financial health, as it does not account for implicit costs (opportunity costs) or non-cash expenses such as depreciation. Additionally, tax considerations, interest payments, and changes in non-operating items may affect a company’s net income for tax purposes, which may differ from accounting profit.

Accounting profit is distinct from economic profit, which considers both explicit and implicit costs, including opportunity costs. Economic profit provides a broader view of a company’s profitability by accounting for the full cost of resources used, including the value of alternative uses for those resources.