Accounting Costs

Definition

Accounting costs refer to actual monetary expenditures made by a firm for resources used in production. These include explicit out-of-pocket expenses such as wages, rent, and raw materials.

Analogy

Think of accounting costs as your personal budget. It includes all the money you spend on groceries, rent, utilities, and other expenses that you can track with receipts or bank statements.

Related terms

Economic Costs: Economic costs encompass both explicit (accounting) costs and implicit (opportunity) costs. They include the value of resources used in production, whether they involve actual monetary payments or not.

Implicit Costs: Implicit costs are opportunity costs that arise from using resources for a particular purpose instead of their next best alternative use.

Total Costs (TC): Total cost is the sum of all fixed and variable costs incurred in producing a given quantity of output. It includes both explicit (accounting) costs and implicit (opportunity) costs.