Difference Between Implicit Cost and Explicit Cost

Implicit Cost vs Explicit Cost

Implicit cost and explicit cost are terms used in accounting . As just about anything in accounting, there is always what we call as a relative cost to each transaction. However as these costs are measured, the most common types being mentioned are implicit and explicit cost. It is intriguing to know what sets them both apart though.

Implicit cost

Implicit cost is considered as the cost that has occurred on an enterprise but is not initially reflected and reported as a direct expenditure. It is usually referred to as the deficit from a potential revenue. It is a result when the person renounces his capacity to gain higher profitability. This is equates when a company forgoes the satisfaction and benefits that a specific project might generate.

Explicit cost

Explicit cost is the cost that is solidly reported based on numbers and statistics. This actual cost is very detailed in terms of the figures that were generated. It provides a clear and continuous cash flow from expenses that don’t necessarily proved to be obvious about it and establish the right from the thought of profitability. Bottom line, this type of cost is often shown as the tangible aspect of the business and pretty much considered as the revenue.

Difference between Implicit Cost and Explicit Cost

The difference between the two can be attributed this way, implicit cost is an anticipated loss of revenue even before the whole transaction pushed through. These are not in reflected in cash but rather this is based on benefits that a certain investment seems very promising.

Explicit cost on the other hand is the black and white accountability of all the profit. This is measured of course by its monetary value or any of its equivalent which can be counted and verified in a report. It can also be said that explicit cost is definite in nature and very exact, while implicit on the other hand focuses more on the value and personality of a certain transaction.

So there it goes, they may seem totally opposite from each other but then in every audit, they exist side by side. Just like yin yang, one couldn’t be without the other. There relativity cannot be be questioned since because of this, one can make the proper judgment if a certain investment is penetrating or not.