Profit is the increase in a company’s net ASSETS—its assets minus its liabilities—over a period of time. The typical way to calculate profit is to subtract net assets from the beginning of the accounting period from end-of-period net assets. If a company had assets of $10,000 and liabilities of $6,000 at the beginning of the year and assets of $15,000 and liabilities of $8,000 at the end of the year, then net assets at the beginning of the year would be $4,000 and at the end of the year would be $7,000. The firm’s profit for the year would be $3,000, assuming there had not been any transactions with the owners. If, however, the owners had taken out $2,000 during the year, then the overall profit would have been $5,000, since the year-end net assets would have been $9,000. Economists are theoretically careful to include both explicit and implicit COSTS in determining profit. Implicit costs would include the value of alternative uses of owner’s labor and CAPITAL in making profits. There is further differentiation between a normal profit and excess profits. A normal profit is what a business needs to earn to adequately reward the entrepreneur for his or her efforts in organizing the elements of PRODUCTION. Excess profits— the profits above the normal profit—are what attract other entrepreneurs into the industry. Accountants tend to concentrate on calculating a company’s profits in a way that looks only at explicit costs, without considering implicit costs. To distinguish their calculation from the theoretical, accountants use the term net income to refer to profits and report their profit calculation on the INCOME STATEMENT, one of a company’s basic FINANCIAL STATEMENTS. (Businesspeople sometimes casually call the income statement the “P and L,” short for “profit and loss statement.”) Profit is calculated by subtracting the company’s expenses from its revenue. Revenue is the firm’s increases in net assets resulting from its operations and good fortune and not from cash injections supplied by the owners. Expenses are decreases in the company’s net assets relating to operations and not any withdrawal of net assets the owners may make. Mack Tennyson