Google
Thursday 
September 20, 2018 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
NORMATIVE ECONOMICS: The branch of economics that states the way the economy should operate. A normative statement is based on values and can be proved neither right or wrong. While positive economics seeks to explain the way it is, normative economics, the policy side of economics, seeks to prescribe the way it should be. Normative economics is used to recommend ways to change the world, to improve it, and to make it a better place for both man and beast.

Visit the GLOSS*arama


ACCOUNTING COST:

An actual outlay or expenses incurred in the production of a good that shows up in a firm's accounting statements and records. Accounting cost is an explicit payment (that is, money changing hands) incurred by a firm. Accounting cost, while very important to accountants, company CEOs, shareholders, and the Internal Revenue Service, is only minimally important to economists. The reason is that economists are more interested in economic cost (also called opportunity cost), which is the value of foregone production.
Accounting cost is essentially an out-of-pocket, explicit payment that generally compensates the resources used by a firm for the opportunity cost incurred in production. A worker like Phoebe Pankovic, for example, might be paid $10 an hour to produce Wacky Willy Stuffed Amigos (those cute and cuddly armadillos and tarantulas) to compensate for the $10 worth of other goods she is NOT producing at another job. That is, Phoebe could be producing $10 worth of Hot Momma Fudge Bananarama Ice Cream Sundaes rather than Wacky Willy Stuffed Amigos. This $10 hourly expense is an accounting cost of the firm that is also compensation for the economic cost of the worker.

However, an economic cost need not be an accounting cost and vice versa.

  • Economic Cost, No Accounting Cost: In some cases, the resources used by a firm for production incur an economic cost without an explicit payment showing up on the official accounting records. One of the more important examples, especially when the topic turns to the analysis of short-run production, is normal profit. The entrepreneurs of a firm incur the opportunity cost of foregone profit from another business activity, but this is never considered an accounting cost.

  • Accounting Cost, No Economic Cost: Alternatively, an accounting cost incurred by a firm might not be paid as compensation for an economic cost. Suppose for example, that Phoebe Pankovic receives an hourly wage of $10 to produce Wacky Willy Stuffed Amigos. However, her opportunity cost, the value of Hot Momma Fudge Bananarama Ice Cream Sundaes production foregone is only $7. In this case only $7 of the accounting cost corresponds to an economic cost. The remaining $3 is an accounting cost that is not compensation for any economic cost. In effect, this extra $3 is actually part of the economic profit of the firm that is received by the worker rather than the entrepreneurs.

<= ABSTRACTIONACCOUNTING PROFIT =>


Recommended Citation:

ACCOUNTING COST, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: September 20, 2018].


Check Out These Related Terms...

     | accounting profit | normal profit | economic profit | profit |


Or For A Little Background...

     | opportunity cost | explicit cost | economic cost | cost | production | production cost | business | factors of production | microeconomics | short-run production analysis |


And For Further Study...

     | total cost | variable cost | fixed cost | average cost | marginal cost | legal business organizations | firm objectives | opportunity cost, production possibilities | profit maximization |


Related Websites (Will Open in New Window)...

     | American Accounting Association | Internal Revenue Service |


Search Again?

Back to the WEB*pedia


APLS

PURPLE SMARPHIN
[What's This?]

Today, you are likely to spend a great deal of time touring the new suburban shopping complex wanting to buy either a replacement remote control for your television or a replacement nozzle for your shower. Be on the lookout for infected paper cuts.
Your Complete Scope

This isn't me! What am I?

Okun's Law posits that the unemployment rate increases by 1% for every 2% gap between real GDP and full-employment real GDP.
"No amount of business school training or work experience can teach what is ultimately a matter of personal character. "

-- Truett Cathy, Chick-fil-A Inc. founder

GARP
Generalized Axioms of Revealed Preference
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2018 AmosWEB*LLC
Send comments or questions to: WebMaster