Gerald, a certified public accountant, informs his client, Simon, a small business owner, that Simon's production expenses for the last year were $40,000. Revenues were $100,000. Simon gave up a job that paid $70,000 to open his business. What is Simon's accounting profit or loss?

Question

Quizplus · Accepted Answer

Accounting profit is calculated by subtracting total explicit costs from total revenues. In this case, Simon's revenues were $100,000 and his explicit costs (production expenses) were $40,000. Therefore, his accounting profit is $100,000 - $40,000 = $60,000. The salary Simon gave up to start the business is not considered in calculating accounting profit, as it is an implicit cost.

Gerald, a Certified Public Accountant, Informs His Client, Simon, a Small