LAMINA, JAN DWYNE L.

BSAC 1-1

ECONOMIC AND ACCOUNTING COST

Accounting costs refer to the direct and actual expenditures of a firm in purchasing an
input for production. It is also known as the explicit cost or the out-of-pocket cost, which
includes payment of salaries, wages, utilities, supplies, rent, raw materials, etc. Accounting costs
are recorded in the accounting books based on their historical value, meaning they are
recognized as the actual cost of the purchase during that time period. On the other hand,
economic cost refers to the total expenditure of a firm in producing goods and services.
Economic cost is broader and wider than accounting cost since it includes not only the explicit
cost but also the implicit cost or the opportunity cost. Including and recognizing the implicit cost
is important to better know if the firm can actually generate profit or not. For example, you own
a sari-sari store and can earn ₱15,000 revenue per month on the ₱7,000 cost of inventory. From
accounting’s viewpoint, you are able to gain ₱8,000 profit, so after knowing that you felt
satisfied to earn twice as much as your expenses, But in economics, you must also recognize
your opportunity cost. For example, you lose the chance to work at your cousin’s firm with the
chance to have ₱20,000 salary a month since you chose to build a business of your own. By
including the implicit cost, you realized that your profit is not enough, so you tried to
contemplate and agreed that in the future you must think critically in economical perspective so
that you can make better decisions.

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