The expenses used to calculate accounting profit are:
The business hires several employees, each of whom is paid an annual salary
The expenses that are not used to calculate accounting profit are:
The business operates out of a building that is owned by the business owner. She could lease the building to another company for $100.000 per year.
The owner of the business uses her time to manage day to day operations.
The business's owner could have earned an additional $20,000 over the past year, had she invested the $200,000 she used to start her company in the stock market instead
Accounting profit is explicit cost less revenue. Explicit cost is the cost that is actually incurred in running a business. Examples of explicit cost are the rent paid on an office space and the salary paid to workers.
Accounting profit = revenue - explicit cost
Economic profit is accounting profit less implicit cost. Implicit cost are the cost of the next best opportunity forgone when one option is chosen over other options. An example of an implicit cost is the interest that would have been earned if the investment was left in the stock market.
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