Final answer:
A company's total revenue tells you how much money it has from sales, not to be confused with net profit, which accounts for all costs and expenses. Accounting profit is total revenue minus explicit costs, like labor, capital, and materials.
Step-by-step explanation:
A company's total revenue tells you how much money the company has from sales. Total revenue is calculated as the price of the product multiplied by the quantity sold. However, total revenue does not account for the costs incurred by the company in generating this revenue. When you subtract explicit costs (such as labor, capital, and materials) from total revenue, you get the company's accounting profit. For instance, if a firm had total revenues of $1 million and it spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, its accounting profit would be $50,000. This is different from total revenue and net profit. Net profit is the amount remaining after all operating expenses, taxes, interest, and preference dividend have been deducted from a company's total revenue.