Sam quit a $30,000-a-year job with a local heating and air conditioning firm to go into business for himself. After his first year in business, his accountant showed him an income statement, which indicated Sam’s firm had a profit of $40,000. During this year Sam had drawn a salary of $20,000.
a. What were Sam’s accounting profit, and entrepreneurial profit?
b. Explain the difference between accounting profit and entrepreneurial profit.