Economists vs Accountants (profit)

I am an economics student at the University of Louisville. Why? Because I love business. Well, actually, because I disliked the idea of becoming an engineer. See, I originally went to UL as a mechanical engineer major, but about 2 months before classes started, I gave my future a little thought and decided that these hands weren't made to be an engineer. Rather, I have been given the mind to pursue business and entrepreneurial endeavors.  That being said, understand that although I have a bias towards the practice of economics, the following is not a persuasive argument about which practice is better. Instead, I am just going to give you a few examples of how they are slightly (very) different in their ways of analyzing business.

Profit is calculated in a way that yield very different results, usually with accounting recognizing an overstatement of profit due to an understatement of expense. Expenses can be broken down into two primary categories: EXPLICIT and IMPLICIT. Explicit costs are the more obvious, cash/asset-related expenditures that the company partakes in order presumably to increase revenue. Implicit costs, however, is generally known as OPPORTUNITY COST, what you give up in order to produce x number of units. If you have looked into either accounting or economics at least a little, it should be clear based on these definitions which practice analyzes which costs. Well, accounting only uses explicit, monetary, costs in their computation of profit. Economics uses both explicit and implicit. Profit in general is computed by subtracting expenses from your total revenue. The processes for both practices are as follows:

Economics      Profit = Total Revenue - Explicit Costs - Implicit Costs
Accounting     Profit = Total Revenue - Explicit Costs

This difference will, more often than not, produce recorded profits that are strikingly different. For example, assume Company A had a good year of sales and made $200,000 in total revenue. Throughout the year, they purchased $150,000 worth of equipment (an explicit cost), but had observed an opportunity cost of $60,000 (an implicit cost). Well, the accounting profit would be $50,000 and the economic profit would be -$10,000. As you can see, these numbers are totally different, as the economic profit was actually negative, meaning the company lost money.

Here's another example, assume Company A had total revenue of $200,000 and that they noted $170,000 worth of explicit costs and $30,000 of implicit costs. The accounting profit would be $30,000 while the economic profit would be $0. Typically, a profit of $0 seems bad, but this is actually considered a success in the business world and is known as NORMAL PROFIT, meaning you didn't lose anything. Good job, Company A.

Many other differences exist, but when it comes down to it, comparing accountants and economists is like comparing apples to oranges; they both provide a way to examine and manipulate business strategies based on statistics and trends over a certain financial period. Both are important (utterly vital) to the life of a company and must be utilized efficiently in order to guarantee survival in the world of business.

To close, I'd like to note that Christmas is only 54 days away as of November 1.