- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Topics in Demand and Supply Analysis
- Subject 5. Economic Profit vs. Accounting Profit
CFA Practice Question
An economist's notion of costs differs from an accountant's notion of costs as follows:
II. Economic cost equals implicit cost.
III. Economic cost includes the opportunity costs of nonpurchased inputs; accounting cost includes only actual cash payments.
IV. Economic costs are smaller than accounting costs.
I. Accounting cost is the sum of explicit and implicit costs.
II. Economic cost equals implicit cost.
III. Economic cost includes the opportunity costs of nonpurchased inputs; accounting cost includes only actual cash payments.
IV. Economic costs are smaller than accounting costs.
Correct Answer: III
The opportunity costs of nonpurchased inputs, or implicit costs, are accounted for by the economist but not by the accountant.
User Contributed Comments 7
| User | Comment |
|---|---|
| piesiu | What about non-cash accounting costs like Depreciation? |
| gord | I agree piesiu...the wording is a bit tricky on that one. With that said, III is clearly the more correct of the four choices and that is reason enough to select it |
| bobert | The opportunity cost of an asset has an associated depreciation, the economic depreciation. The non-cash depreciation method in accounting is an expense, but it is actually incurred so to speak because an asset was explicitly purchased. I believe that is where the difference lies. |
| BandB | Why not II. Economic cost is implicit cost, isn't it? |
| indrasenareddy | economic cost include both explicit and implicit costs. SO it is not correct to say economic cost is implict cost. |
| choas69 | accounting cost = explicit cot economic cost = implicit & explicit costs |
| kingirm | incorrect answer. there may be non-cash payments or costs... |