Finance Formulas / July 18, 2018 / Rory Wise
The main thing to understand in managerial accounting is the difference between revenues and profits. Not all revenues result in profits for the company. Many products cost more to make than the revenues they generate. Since the expenses are greater than the revenues, these products great a loss—not a profit.
Economic profit includes the opportunity costs a company loses or gains by making a decision to pursue one avenue towards revenue, thus passing by a different opportunity which also might have produced revenue. A firm can have a large accounting profit, but no economic profit.
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