What is the accounting profit?

The interest groups in a company they are very important. They are those people who are interested or who care about what our company does, the decisions it makes and the results that are obtained. That is why, they will focus on those concepts that really matter to them, compared to others that not so much.

To understand this, we must bear in mind that, on the one hand, there are the shareholders who want to obtain benefits with the company actionsOn the other, there are managers, clients, workers, etc., who want to achieve well-being in the company. This is where the concept of accounting profit arises, which cannot be confused with economic profit.

The accounting profit is the profit obtained by the company as a result of the difference between income and expenses of a period. In contrast, the economic benefit refers to the difference that exists between the equity of a company from one year to another (which is, almost always, the previous year).

The objective of companies is to obtain profits to be able to distribute it among their shareholders, although it is logical that not all share the same objectives. Let's say that wanting to obtain benefits serves the shareholders to be able to obtain a match between them. The more profit the company makes, the more profit the shareholders get.

For this reason, when it comes to calculating profit, there are differences between them: shareholders will want to meet their objectives according to the accounting benefits that the company has obtained; managers or other interested parties will seek to obtain the economic benefit.

To be able to base ourselves on the idea and summarizing:

  • Accounting profit = Income - Expenses, shareholders are interested in it
  • Economic benefit: Own funds (period X) - Own funds (period X-1), managers are interested

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