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Implicit cost

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bsai partish

166 Points Posted on 11 August 2020

according to economics implicit cost should not be recorded in the books of accounts.But why partners salary is included in p and l appropriation account?

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Quick Summary

This discussion clarifies the distinction between implicit and explicit costs in economics. While implicit costs, representing forgone benefits, aren't recorded in accounting books, explicit costs like partner salaries are. Partner salaries are treated as explicit costs because they are a direct payment for services rendered, and thus are included in the P&L appropriation account to accurately reflect business expenses and profitability.

Aashok Kumar Sharma

Finance/Compliance Consultant

69291 Points Posted on 11 August 2020

When partners wants Salary to be paid for their operations in the business then it is called EXPLICIT COST which must be recorded in business.

Implicit cost only arrives when someone forgoes their Salary or interest or any other monetary benefits for long term benefit and success.

Implicit costs are harder to measure than explicit ones, which makes implicit costs more subjective. Implicit costs help managers calculate overall economic profit, while explicit costs are used to calculate accounting profit and economic profit.