Accounting Cost and Economic Costs

Economic costs are also known as Explicit Costs or expenditure Costs. There are the contractual payments made by the employer to those factors of production, which do not belong to the employer himself.

Accounting Costs, The accounting Costs are also known as the imputed costs or the implicit costs or non-expenditure costs. They arise in the case of those factors, which are possessed and supplied by the employer himself. An employer may contribute his own land, his own capital and even may himself work as the manager of the firm. As such he is entitled to receive rent on his land interest on the capital contributed by him and also salary for his work as manager of the firm. All these items should be included in accounting costs and would be payable by the employer to himself. The employer would calculate the on the basis of their alternative or opportunity costs. The depreciation of capital equipment is still another item in accounting costs. It is not contractual payment to be made by the employer to same one, but it is to be credited to the depreciation account by the employer himself.

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