Explicit costs are normal business expenses that appear in the ledger and directly affect a company’s profitability.
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Explicit cost
Concept
Existing cost in English is Explicit cost.
Expenses are now a normal business expense, appearing in the ledger and directly affecting a company’s profitability. Expenses now clearly define cash flow through the income statement. Examples of costs now include wages, rent payments, ancillary systems, raw materials, and other direct costs.
Costs are now easily identifiable and related. to the company’s business activities. These are recorded in the general ledger of the company and carried over to the expenses listed on the income statement.
Net income (NI) of a business reflects the income left over after all expenses have now been paid. Expenses are currently the only accounting expenses needed to calculate profitability, as they have a clear impact on a company’s bottom line.
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Cost metrics are now particularly useful for companies’ long-term strategic planning.
Compare current and hidden costs
Existing costs includes tangible assets and monetary transactions and results of real business opportunities. Expenses are now easily identifiable, recordable, and auditable. Expenses related to paid advertising, supplies, backend systems, inventory, and equipment are examples of current costs.
Although depreciation of an asset is not an activity that can be tracked in a tangible way, depreciation expense is a present expense as it relates to the cost of the asset facility owned by the company.
In contrast, hidden costs are not explicitly described, identified, or reported as an expense. They are often associated with intangible assets and are described as opportunity costs (the value of the best alternative that is not accepted).
An example of a hidden cost is that time spent running a business could be better spent doing something else. Management will use current costs when looking at the performance of a business, including profits; but will calculate hidden costs for making decisions or choosing between alternatives.
Companies use both explicit and implicit costs when calculate the economic profit of the company (defined as the total profit received by the company based on all costs incurred to achieve that revenue). In particular, economic returns are widely used to determine whether a business should enter or leave a market or industry.
(Reference: investopedia.com)
(Reference: investopedia.com)
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