Implicit Costs

An implicit cost, also called an imputed cost, is a cost that does not involve any specific cash payment and is not recorded in the accounting records.

Implicit costs are also called economic costs.

Implicit costs do not become expenses. They cannot be specifically included in financial reports, but they are needed for use in a decisionmaking process. For example, interest not earned on money that could have been invested in an interest-paying security but instead was invested in manufacturing equipment is a frequent implicit or imputed cost. The “lost” interest income is an opportunity cost of investing in the machine. The lost interest is not reported as an expense on the income statement, but it is a necessary consideration in making the decision to invest in the machine, because it will be different if the machine is not purchased.