Explicit cost
Explicit costs refer to the actual monetary payments made to outsiders in exchange for their goods and services. These costs are explicit because they are easily identifiable and can be easily quantified in financial terms. They are also known as out-of-pocket costs because they involve direct cash outflows from the business.

Examples of explicit costs:
- Payments made to suppliers for raw materials or inventory
- Wages and salaries paid to employees
- Rent payments for office space or equipment
- Utility bills and other operating expenses
- Advertising and marketing expenses
- Insurance premiums
- Taxes paid to the government

Distinction between explicit and implicit costs:
While explicit costs are the actual monetary payments made, implicit costs are the opportunity costs associated with utilizing resources in a particular way. Implicit costs are not recorded in the accounting books and do not involve cash outflows. Instead, they represent the value of the next best alternative foregone.

Examples of implicit costs:
- The salary foregone by the owner who works in their own business instead of taking a job elsewhere
- The interest income that could have been earned if the business owner had invested their money in a different opportunity
- The rent that could have been earned by leasing out unused office space or equipment

Significance of explicit costs:
Explicit costs play a crucial role in determining the profitability and financial performance of a business. By accurately tracking and accounting for these costs, businesses can assess their operational efficiency, control expenses, and make informed decisions about pricing, budgeting, and resource allocation.

Conclusion:
Payment made to outsiders for their goods and services are referred to as explicit costs. These costs are easily quantifiable and involve actual cash outflows from the business. Understanding and managing explicit costs is essential for businesses to maintain financial health and make informed decisions.