When calculating accounting profit, which of the following should be excluded?

When calculating accounting profit, the inclusion and exclusion of various costs are important to understand. Accounting profit is determined by taking total revenue and subtracting explicit costs, which are the direct, out-of-pocket expenses associated with running a business.

Opportunity costs, such as the cost of using land or a store that could otherwise be utilized for different purposes, do not qualify as explicit costs. They represent a trade-off rather than a direct cash outflow. In accounting profit calculations, only the actual transactions that lead to cash movements or obligations, such as property taxes, salaries, and operating expenses, are deducted from revenue. Opportunity costs are more relevant in economic profit calculations, which consider both explicit costs and implicit costs (like forgone alternatives). Thus, excluding the opportunity cost aligns with the principle that accounting profit focuses on real cash transactions rather than hypothetical scenarios.