Question

Imagine Tom's annual salary as an assistant store manager is $30,000, he owns a building that rents for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business, and earns revenues of $50,000. What are Tom's accounting profits?

Answer 1

Tom's accounting profits is $35,000

Step-by-step explanation:

Accounting profit: The accounting profit is that profit which is come after deducting the accounting cost from the revenue amount.

In mathematically,

Accounting Profit = Revenue cost - accounting or explicit cost

= $50,000 - $15,000

= $35,000

As the cost which is incurred in running the business is called explicit cost. So we consider in the computation part.