Accounting Profit Calculator

What is accounting profit?

Accounting profit, also called net income on an income statement, is the amount left after a business subtracts all explicit, documented costs from total revenue. Explicit costs are out-of-pocket expenses backed by invoices, payroll records, and tax filings. This calculator totals operating expenses, interest, depreciation, and taxes, then subtracts that sum from revenue. All math runs in your browser.

Accounting profit differs from economic profit, which also subtracts implicit opportunity costs such as the salary an owner could earn elsewhere. After you have net income, the accrual ratio calculator compares cash-backed earnings to accounting accruals as a simple earnings-quality screen. The acid test ratio calculator checks whether liquid assets can cover short-term liabilities without selling inventory. For a sole proprietor estimating federal tax on net self-employment income, the 1099 tax calculator layers self-employment tax and income tax on top of business profit. After you know what the business keeps, the 50-30-20 rule budget calculator can help split personal take-home pay into needs, wants, and savings buckets. When growth plans call for more assets than retained earnings and spontaneous liabilities can fund, the additional funds needed calculator sizes the external financing gap.

How accounting profit is calculated

Start with total revenue from sales or services. Subtract every explicit cost recorded in the period. The calculator groups those costs into operating expenses, interest, depreciation, and taxes.

R is total revenue. O is operating expenses such as wages, rent, inventory, and marketing. I is interest on business debt. D is depreciation, the non-cash allocation of asset cost over useful life. T is income or corporate tax expense for the period. On $100,000 of revenue with $40,000 in operating expenses, $5,000 in interest, $8,000 in depreciation, and $10,000 in taxes, explicit costs total $63,000 and accounting profit is $37,000.

What counts as an explicit cost

Include only costs that would appear on a GAAP or IFRS income statement. Operating expenses cover day-to-day running costs. Interest reflects financing charges on loans, and the after-tax cost of debt calculator measures the net borrowing cost after deducting that interest on corporate tax returns. Depreciation spreads the cost of equipment and property over time even when no cash leaves the business that month. The accumulated depreciation calculator totals that contra-asset under four book methods. REIT analysts often add that same depreciation back when moving from GAAP profit to funds from operations, then to adjusted funds from operations with the AFFO calculator. Taxes are the expense recognized for the period, which may differ from cash paid to the IRS because of timing rules.

Do not subtract opportunity costs, unpaid owner labor, or personal draws that are not recorded as expenses. Those belong in economic profit analysis, not standard bookkeeping profit.

Accounting profit vs gross profit

Gross profit stops after subtracting cost of goods sold from revenue. Accounting profit goes further by also deducting operating expenses, depreciation, interest, and taxes. A business can show healthy gross profit yet report low or negative accounting profit when overhead, financing, and tax expense are heavy.

Frequently asked questions