Hiro owns and operates a small business that provides economic consulting servic

Question

Hiro owns and operates a small business that provides economic consulting services. During the year he spends $57,000 on travel to clients and other expenses. In addition, he owns a computer that he uses for business. If he didn’t use the computer, he could sell it and earn yearly interest of $100 on the money created through this sale. Hiro’s total revenue for the year is $100,000. Instead of working as a consultant for the year, he could teach economics at a small local college and make a salary of $50,000.

What is Hiro's Accounting Profit?

Explanation / Answer

Accounting profit is the difference between total earnings and total spending during a period.

Accounting profit = Total revenue – Total expenses

                              = 100,000 – 57,000

                              = $43,000

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