Implicit cost vs. Explicit cost

Difference between Implicit cost and explicit cost

Both implicit cost and explicit cost are terminologies in accounting. It is common knowledge that every transaction in accounting is accompanied by a relative cost. None the less, the most often encountered examined.

Implicit cost

Implicit costs are expenses on an organization which result indirectly in the process of production, distribution and even marketing. Basically, Implicit costs  are   those  indirect costs emanating from unplanned for expenses e.g. overhead costs  like tea for committee members holding emergency meetings .These costs usually lowers the profits of a company or organization .

Explicit costs

These are the normal expenses incurred in production process. Concrete documentation of these costs is usually done as they impact on the performance of the company directly .These explicit costs when analyzed give detailed information of the outflow of revenue from the organization and thus is used to evaluate the profitability of the organization.

Distinctions between Explicit cost and implicit cost

Implicit cost is the cost incurred by an organization in terms of anticipated loss of revenue of the organization prior to any transaction .These costs are more based on benefits rather than as cash.

On the contrary, explicit cost is a clear accountability of the whole profit of the company. It is measured by the money value of the costs or transformed equivalents of costs incurred. In other words, explicit cost is naturally absolute or rather exact if you like while on the other hand, the implicit cost is to a greater extended concerned with the value or personality of a specific transaction.

From their nature they may appear to you as two very different things in accounting , but it is important to appreciate the fact that they must co-exist side by side in every business transaction made .Their relativity is undisputable since by it we are in a position to evaluate the performance of a certain venture .

Synopsis

Implicit cost is an indirect cost impacting on a business organization but which had not been preplanned for.

Explicit cost is the direct cost that is always expected by an organization even before commencing with the execution of a business plan .There is always a concrete numerical report on these costs.