• Card 82 / 100: *How does interest relate to profit, specifically the difference between accounting and economic profit?

    Answer:
    In everyday language, and even in terms of standard accounting, "profit" refers to the excess of money receipts over money expenditures. But this figure includes the interest payment on the invested capital in the business. In other words, out of the gross or accounting profit we need to subtract the interest payment reflecting the fact that the investors' capital was tied up for a certain period when it could have been "at work" in another project.

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Capitalism: The Market Economy

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Attribution:  Dr. Robert P. Murphy, Lessons for the Young Economist. (Mises Institute), http://mises.org/document/6215/Lessons-for-the-Young-Economist (Accessed 04 April, 2014). License: Creative Commons BY
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