Distinction Between Economist’s And Accountant’s View of Cost - SS2 Economics Lesson Note

Economist's view of cost: Economists focus on the opportunity cost of a decision, which includes both explicit and implicit costs. An economist's definition of cost is broader and considers both explicit and implicit costs. Explicit costs are the actual payments or expenses made by a firm for its inputs such as wages, rent, and utilities. Implicit costs, on the other hand, are the opportunity costs of using resources owned by the firm, such as the cost of using capital that could have been used in alternative uses. Implicit costs are not actual expenses but represent foregone opportunities.

Accountant's view of cost: Accountants focus on the actual cash outflows associated with a decision, which includes only explicit costs. On the other hand, an accountant's definition of cost is narrower and focuses mainly on explicit costs that are directly incurred by a firm. Accountants typically record costs that are directly measurable and have a monetary value such as the cost of raw materials, labor, and overhead expenses. Implicit costs are usually not considered in accounting as they do not involve actual expenditures.