Final answer:
The total money collected by a practice before expenses are deducted is termed gross income. Gross income is total revenue without cost deductions, while net income and accounting profit consider explicit cost deductions. Economic profit also considers implicit costs beyond explicit costs.
Step-by-step explanation:
The total money taken in by a practice before subtracting expenses incurred is called gross income. Gross income represents the total revenue a business brings in through its operations without deducting any costs or expenses. To determine net income, you must subtract the explicit costs from gross income, which gives you the accounting profit. However, to find the economic profit, you must subtract both explicit and implicit costs from the total revenue. Implicit costs include non-monetary opportunity costs, such as the cost of the owner's time or other resources they could have spent elsewhere.
Example Calculation of Economic Profit
Economic profit = total revenues - explicit costs - implicit costs
= $200,000 - $85,000 - $125,000 = -$10,000 per year
In this calculation, explicit costs are the direct, tangible expenses of running a business, while implicit costs represent the opportunity costs involved. The distinction between accounting profit and economic profit is essential; a business has to pay income taxes based on its accounting profit, but its economic success depends on the economic profit.