Accounting Profit Calculator
Enter total revenue and the four explicit costs to see accounting profit, total explicit costs and the profit margin.
Updated
Accounting Profit Calculator
Our Accounting Profit Calculator works out what a business has left once every explicit cost has been taken off its revenue. Type the total revenue, operating expenses, interest, depreciation and taxes for one period. It returns accounting profit along with total explicit costs, the profit margin and the largest cost. It suits business owners checking a month or a year, students comparing accounting and economic profit, and anyone reading an income statement.
Quick answer
Accounting profit is total revenue − explicit costs: with revenue of 500,000 and explicit costs of 380,000, 500,000 − 380,000 = 120,000.
- Total revenue: all sales and other income earned in the period.
- Explicit costs: operating expenses + interest + depreciation + taxes.
- Profit margin: accounting profit ÷ revenue × 100. Here it is 24%.
- Negative result: costs are larger than revenue, an accounting loss.
What Is Accounting Profit?
Accounting profit is the total revenue of a business minus its explicit costs, the costs that are recorded in the books. It is the profit reported on an income statement, where it is usually called net income or the bottom line. It is measured over a period such as a month, a quarter or a year.
The figure is used to judge how a business performed, to work out tax and to decide how much can be paid out to owners or kept in the business. It does not include implicit costs, such as the salary an owner gives up by running the business, which is what separates it from economic profit.
Accounting Profit Formula
= total revenue − explicit costs
This calculator adds up four kinds of explicit cost:
= operating expenses + interest
+ depreciation + taxes
- Total revenue: money earned from sales and other income.
- Operating expenses: cost of goods, wages, rent, utilities, marketing and other running costs.
- Interest: interest charged on loans and other borrowing.
- Depreciation: the part of the cost of equipment, vehicles and buildings charged to this period.
- Taxes: income tax and other taxes charged for the period.
Depreciation is not paid out in cash each year, but it is a recorded expense, so it is taken off when accounting profit is worked out.
How to Calculate Accounting Profit
A business has revenue of 500,000 in a year. Its operating expenses are 300,000, interest is 25,000, depreciation is 15,000 and taxes are 40,000:
+ 40,000 = 380,000
500,000 − 380,000 = 120,000
- Add up the explicit costs. 300,000 + 25,000 + 15,000 + 40,000 = 380,000.
- Subtract them from total revenue. 500,000 − 380,000 = 120,000.
- Find the margin if needed. 120,000 ÷ 500,000 × 100 = 24%.
Accounting profit is 120,000. Explicit costs take 76% of revenue and 24% is left as profit.
From Revenue to Accounting Profit
The bars are drawn to scale. Operating expenses take the largest bite, from 500,000 down to 200,000. Interest, depreciation and taxes then take it to 175,000, 160,000 and finally 120,000.
What Counts as an Explicit Cost
| Item | Enter as |
|---|---|
| Cost of goods sold | Operating expenses |
| Wages, rent, utilities | Operating expenses |
| Marketing, insurance | Operating expenses |
| Loan interest | Interest |
| Wear on equipment | Depreciation |
| Income tax | Taxes |
| Loan principal repaid | Leave out |
| Unpaid time of the owner | Leave out |
An explicit cost is one with a record behind it: an invoice, a payslip, a loan statement or a depreciation schedule. Repaying loan principal is not a cost, because it only reduces what is owed. If the books show amortization, add it to depreciation. Type 0 in any field that does not apply, and use the same period for all five figures.
Accounting Profit Examples
A cafe. Revenue of 320,000, operating expenses of 240,000, interest of 8,000, depreciation of 12,000 and taxes of 15,000:
320,000 − 275,000 = 45,000
Accounting profit is 45,000, a margin of about 14.06%.
A freelance designer. Revenue of 95,000, operating expenses of 22,000, no interest, depreciation of 3,000 and taxes of 14,000:
95,000 − 39,000 = 56,000
Accounting profit is 56,000, a margin of about 58.95%. Service businesses with few costs often show high margins.
A start-up in its first year. Revenue of 150,000, operating expenses of 170,000, interest of 9,000, depreciation of 6,000 and no taxes:
150,000 − 185,000 = −35,000
The result is negative: an accounting loss of 35,000, or about −23.33% of revenue.
Accounting Profit vs Economic Profit
Economic profit goes one step further and also subtracts implicit costs, the income given up by using time and money in this business and not somewhere else:
= accounting profit
− implicit costs
| Accounting | Economic | |
|---|---|---|
| Explicit costs | Yes | Yes |
| Implicit costs | No | Yes |
| Used for | Reports, tax | Decisions |
In the main example, suppose the owner could earn a salary of 70,000 elsewhere and the money tied up in the business could earn 20,000 in interest. Implicit costs are 90,000, so economic profit is 120,000 − 90,000 = 30,000.
The freelance designer above has an accounting profit of 56,000. If a job would pay 65,000, economic profit is 56,000 − 65,000 = −9,000. The books show a profit, yet the designer would be better off employed. Economic profit is never higher than accounting profit. To include implicit costs, use the Economic Profit Calculator.
Where It Sits on an Income Statement
An income statement reaches accounting profit in stages. With the figures from the main example:
| Line | Amount |
|---|---|
| Revenue | 500,000 |
| − Operating expenses | 200,000 |
| − Depreciation (EBIT) | 185,000 |
| − Interest (pre-tax profit) | 160,000 |
| − Taxes (net income) | 120,000 |
The 200,000 on the second line is EBITDA, earnings before interest, taxes, depreciation and amortization. The last line, net income, is the accounting profit. The order of subtraction does not change the final answer. For the stages on their own, see the EBIT Calculator and the Net Income Calculator.
What Raises or Lowers Accounting Profit
Starting from the main example, each change below is made on its own:
| Change | Profit |
|---|---|
| Starting point | 120,000 |
| Revenue up by 50,000 | 170,000 |
| Operating expenses down 20,000 | 140,000 |
| Interest up by 10,000 | 110,000 |
Profit is a remainder, so it moves one for one with revenue and with each cost. In practice a rise in sales usually brings some extra costs with it, and a higher profit usually brings a higher tax charge.
How to Read the Result
| Result | Meaning |
|---|---|
| Positive | Revenue covers all explicit costs, with some left over. |
| Zero | Accounting break-even: revenue equals explicit costs. |
| Negative | An accounting loss: costs are larger than revenue. |
An amount is hard to compare between a large business and a small one, so look at the profit margin as well. Margins differ widely between industries, so compare a business with its own past periods and with similar firms.
What the Result Leaves Out
- Implicit costs. The time and capital of the owner are not charged, so a positive result can still be a poor use of resources.
- Cash. Profit is not cash flow. Depreciation lowers profit without any cash leaving, and loan repayments use cash without lowering profit.
- Accounting choices. Depreciation methods and the timing of revenue and expenses change the figure.
- One period only. A single year can be unusually good or bad. Look at several periods together.
The result is for education and planning and is not accounting or tax advice.
Key Terms
- Accounting profit
- Total revenue minus explicit costs.
- Explicit cost
- A recorded cost, such as wages, rent or interest.
- Implicit cost
- Income given up by not using a resource elsewhere.
- Economic profit
- Accounting profit minus implicit costs.
- Depreciation
- The cost of a long-lived asset spread over its life.
- Net income
- The bottom line of an income statement.
- Profit margin
- Profit as a percentage of revenue.
How to Use the Accounting Profit Calculator
- Enter total revenue. Type the revenue earned in the period, such as 500,000.
- Enter operating expenses. Type the running costs for the same period, such as 300,000. Include cost of goods, wages, rent and utilities.
- Enter interest, depreciation and taxes. Type each one, such as 25,000, 15,000 and 40,000. Type 0 for any that does not apply.
- Read and copy the result. Accounting profit appears as you type, with the working, total explicit costs, the profit margin and a bar showing costs against profit. Press Copy to copy it, or Clear or Esc to start again.
Example: revenue of 320,000 with operating expenses of 240,000, interest of 8,000, depreciation of 12,000 and taxes of 15,000 gives an accounting profit of 45,000.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate accounting profit?
Add up the explicit costs (operating expenses, interest, depreciation and taxes) and subtract the total from total revenue. What is left is accounting profit.
What is the accounting profit formula?
Accounting profit = total revenue − explicit costs. In this calculator, explicit costs = operating expenses + interest + depreciation + taxes.
What is the accounting profit on 500,000 of revenue with 380,000 of explicit costs?
It is 120,000, because 500,000 − 380,000 = 120,000. That is a profit margin of 24%.
What is the difference between accounting profit and economic profit?
Accounting profit subtracts only explicit costs, the ones recorded in the books. Economic profit also subtracts implicit costs, such as the salary an owner gives up, so it is never higher than accounting profit.
Is accounting profit the same as net income?
Yes, in most cases. Net income on an income statement is revenue minus all recorded expenses, including interest, depreciation and taxes, which is what accounting profit measures.
Can accounting profit be negative?
Yes. When explicit costs are larger than revenue the result is negative, which is an accounting loss for the period.
Is depreciation an explicit cost?
It is treated as one here. No cash is paid out for it each year, but it is a recorded expense on the income statement, so it is subtracted to reach accounting profit.
What are examples of explicit costs?
Wages, rent, materials, utilities, marketing, insurance, loan interest, depreciation and taxes. Each has an invoice, payslip, statement or schedule behind it.
Is the Accounting Profit Calculator free?
Yes. It is free to use, with no sign-up and no limit on how many times you use it.
Sources
- OpenStax. Principles of Economics 3e, 7.1 Explicit and Implicit Costs, and Accounting and Economic Profit.
- Lumen Learning. Microeconomics: Costs and Profit.
- Corporate Finance Institute. Accounting Profit.
- WallStreetMojo. Accounting Profit.
- Wikipedia. Profit (accounting).
- Wikipedia. Profit (economics).
- Wikipedia. Explicit cost.
- Wikipedia. Implicit cost.
- Wikipedia. Net income.
Try our Accounting Profit Calculator to see what is left of revenue after every explicit cost in a couple of seconds.