Although economists and accountants treat many costs differently, they both treat the cost of capital the same. a. True b. False | Homework.Study.com (2024)

FAQs

Do economists and accountants treat the cost of capital the same? ›

Answer and Explanation:

Accountants and economists indeed treat costs differently like "opportunity cost"; however, it is false that they treat the cost of capital in the same way around. Economist costs focus on "what-if" costs, while Accountants costs are actual costs paid. So, the answer is false.

Answer and Explanation:

Accountants only take into account explicit costs while economists look at both implicit and explicit costs. For example, assume a firm owned the land they operate on. An accountant would show no cost of operating on the land beside the taxes.

The major difference between these costs is that accounting costs refer to actual money spent running a business. In contrast, economic costs refer to an amount that you may spend if you decide an investment is worth the expenditure. These contrasts make accounting costs explicit and economic costs implicit.

Answer and Explanation:

Economic cost is usually larger than accounting cost because economic cost includes implicit cost and explicit cost. Explicit costs are any that require payment by the producer. Implicit costs are any opportunity costs associated with the production choice.

Key Takeaways

Accountants track the flow of money for businesses and individuals. Economists track the larger trends that drive money and the resources that money represents. Both help businesses and governments plan for the future, make sound financial decisions, and set fiscal policies.

Economic profit refers to total revenue from sales minus opportunity costs from all inputs. Accounting profit, on the other hand, represents the total earnings of a company, which includes explicit costs.

economic cost includes opportunity cost, while accounting cost does not.

Economic cost is both the explicit cost and the opportunity cost. This cost includes the gains and losses in terms of money, time, and resources. It considers both the monetary value and the choices not selected because of the choice selected. The phrase "time is money" supports the concepts behind economic cost.

b) Why don't economists use the same cost data as accountants use? Economists want to assess the real current value of an organization and identify future performance and profitability. They want to account for outstanding expenses and revenues in real-time for this analysis.

Accounting can set you up nicely for a job right out of university. While economics gives you the framework to understand politics, finance and decision making. Helping you in many careers you may decide upon and giving you more freedom to move careers later on.

How do economists define cost or alternative cost? ›

When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.

Accounting costs are essential to any business. Every business owner must know the exact amount of money coming in and going out. Accounting costs are reported on official company ledgers. Economic costs are important for determining long-range business strategy.

Financial costs are actual monetary expenditures for resources, such as staff salaries, facility rent, and medical supplies. Economic costs include financial costs plus the value of resources that are not paid for (but must be monetized), such as volunteer time, caregiver time, and donated space and equipment.

While a cost is generally a one-time payment, an expense is best described as an amount paid regularly towards ongoing business operations. These payments are important to a company's ability to generate revenues.

Production cost refers to all of the expenses associated with a company conducting its business while manufacturing cost represents only the expenses necessary to make the product. Whereas production costs include both direct and indirect costs of operating a business, manufacturing costs reflect only direct costs.

b) Why don't economists use the same cost data as accountants use? Economists want to assess the real current value of an organization and identify future performance and profitability. They want to account for outstanding expenses and revenues in real-time for this analysis.

Answer and Explanation:

They are (the accountants) to provide financial reports based on past transactions. On the other hand, an economist uses replacement cost basis which is quite opposite to what an accountant do, like for the analysis of the demand supply functions and equate them to measure the costs.

In addition to the explicit costs and revenues used by accountants, economists include all implicit costs and revenues when calculating profit. This means that they include opportunity costs and changes in the value of any assets owned by the firm.

Economic cost includes both explicit and implicit costs. The explicit costs are the accounting costs, in other words, the actual money spent. The implicit costs are the opportunity costs, or the value of the choice not selected.