Question

Differentiate between implicit and explicit costs.

Answer 1

Implicit Cost	Explicit Cost
1. Implicit costs are usually described as opportunity costs or the loss of an opportunity in a given time or situation.	1. Explicit costs are costs that occur and are reported in the business documents. They are also known as direct costs or accounting costs.
2. Implicit costs waive the potential benefits and satisfaction in a certain business transaction. Simply put, an implicit cost is the loss of a possible benefit or asset that did not occur.	2. An explicit cost is a cost that happens for a purpose. In addition i, explicit costs usually have a direct impact on the company and its profits.
3. Implicit costs deal with intangibles that usually leave without a trace or record. Implicit costs include: wasted potential opportunities, time, profit, and labour.	3. Explicit costs result in tangible assets or opportunities for the company. Examples of explicit costs are: payment for rent, salary and wages, services from other companies, raw materials, maintenance, bills, and other expenditures.
4. Implicit costs can also be said to be the indirect results of business activities and processes. Usually, they involve indirect expenses from unforeseen events or emergencies.	4. Explicit costs are easier to identify, recognize and account for because they leave a record or paper trail. In addition, explicit costs usually involve physical objects and money-based transactions.
5. Since implicit costs leave no records, these costs are not easy to account for.	5. Explicit costs are used by accountants in preparing business analysis and business-related documents like accounting, management and financial reports.