Question

Distinguish between economic cost and accounting cost.

Answer 1

Sr. No.	Basis	Economic Cost	Accounting Cost
1.	Meaning	Includes both explicit and implicit costs.	Includes only explicit (actual) costs.
2.	Scope	Broader – considers opportunity cost.	Narrower – only actual money expenses.
3.	Components	Wages, rent paid + owner’s time, self-owned capital, etc.	Wages, rent, raw materials, electricity, etc.
4.	Recorded in Accounts	Not fully recorded (implicit costs are not recorded).	Fully recorded in financial statements.
5.	Used for	Calculating economic profit.	Calculating accounting profit.
6.	Example	Rent paid + rent of self-owned land used.	Rent paid to landlord only.