Scroll Top

search-icon
    drop-arrow

    Implicit Cost

    What is an Implicit Cost?

    An implicit cost is any cost already incurred but not explicitly expressed or reported as a separate expense. It reflects the value of opportunity that occurs when an organisation uses internal capital for a project without any precise reimbursement for resource use.

    This means that when a company allocates its resources, the ability to earn money from resource and use elsewhere is always forgotten, so there is no cash exchange. Simply put, an implicit cost stems from the use of an asset, rather than renting or purchasing it.

    Breaking Down Implicit Costs

    Implicit costs are also called values imputed, implied, or notional. It's not easy to quantify those costs. That's because for accounting purposes companies don't typically report indirect expenses because money doesn't change hands.

    These costs are a loss of potential revenue but not of profits. A company may choose to include these costs as the cost of doing business as they represent potential revenue sources. Definitions of tacit expenses include loss of interest income on funds and equipment depreciation for a construction project.

    Difference Between Implicit Costs and Explicit Costs

    Technically, tacit expenses are not recorded and cannot be reliably calculated for accounting purposes. The knowledge of implicit costs does not require cash exchanges. But they are an essential consideration, as they help managers make effective business decisions.

    Those costs contrast considerably with specific charges, the other broad categorisation of business expenses. These reflect any costs incurred by a corporation in paying cash or other measurable resources. Rent, salaries, and other operating expenses are known as transparent costs. They are all recorded in the financial statements of an enterprise.

    The main difference between the two types of costs is that implicit costs are the cost of opportunity. In contrast, explicit expenses are expenses paid with the proper tangible assets of a company. That makes implicit prices synonymous with imputed values, while explicit costs are considered to be out-of-pocket costs.

    Popular Topics

    Latest Articles

    Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

    Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

    CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

    Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

    Cleartax is a product by Defmacro Software Pvt. Ltd.

    Company PolicyTerms of use

    ISO

    ISO 27001

    Data Center

    SSL

    SSL Certified Site

    128-bit encryption