Final answer:
The statement is true; accounting provides a service by reporting a company's profit potential through the concepts of accounting profit and economic profit. Accounting profit considers only explicit costs, while economic profit includes both explicit and implicit costs, offering a complete understanding of financial health.
Step-by-step explanation:
The statement that accounting provides a service to society by gathering and reporting information about a company's profit potential is true. Accounting plays a vital role in business and economics by detailing profit in terms of two key concepts: accounting profit and economic profit.
Accounting profit is calculated as total revenue minus explicit costs, which are the direct monetary expenses a company incurs. This is the profit reported in financial statements and the one on which income taxes are calculated.
On the other hand, economic profit includes both explicit and implicit costs. Implicit costs are indirect, non-monetary expenditures like opportunity costs. Economic profit is a more comprehensive assessment of a company's profit potential because it accounts for the money a firm could have earned if its resources were employed in the next best alternative.
Understanding both definitions of profit is essential for analyzing a company's true financial health and profitability. The distinction between accounting and economic profit ultimately helps inform investors, stakeholders, and society about the economic success of a company beyond the figures reported on the income statement.