Final answer:
Explicit transactions can be identified by key indicators such as monetary transactions, supporting documentation, the involvement of external parties, and entries in accounting records. An interest payment on a loan is an explicit cost as it is a direct monetary payment to a lender. Understanding the relationship between cost and revenue is essential in distinguishing explicit and implicit costs.
Step-by-step explanation
In the context of a business's financial transactions, it is important to understand the difference between explicit costs and implicit costs. Explicit costs refer to direct, out-of-pocket payments to others, while implicit costs represent the opportunity costs of using resources owned by the business. When identifying explicit transactions, look for key indicators such as:Monetary transactions: Payments made in cash, by check, or electronic transfers.Documentation: Receipts, invoices, and contracts that record the financial exchange.External parties: Involvement of third parties such as suppliers, service providers, and lenders.Accounting records: Entries in financial statements such as the income statement or balance sheet.
Uerstanding the relationship between cost and revenue is also crucial. Explicit costs are subtracted from revenue to calculate accounting profit, while incorporating both explicit and implicit costs gives economic profit—a broader measure of profitabilityTo answer question 10, an interest payment on a loan to a firm is considered an explicit cost because it is a direct, monetary payment made to a lender.