Gross vs Net Income

Gross Vs Net Income : What’s the difference?

Gross vs Net Income

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Gross and net income have different meaning but people confuse about these termsGross vs Net Income when talking about salaries, wages, and business.

People mixed gross and income with each other.

For the description of the financial terms businesses used this but people use these to describe the difference in salaries.

What is a Gross Income?

Gross income is the revenue which exceeds the cost of goods sales. Gross income does not take the administrative expenses and taxes into account. Now for the calculation of gross income, we take an example.

  • Sales =$100,000
  • COGS = $50,000
  • selling expenses =$10,000
  • Administrative expenses =$15,000
  • Taxes =$5,000

Gross income can be calculated by subtracting the COGS from total sales as

( 100,000 – 50,000 = 50,000)

For gross margin calculation, expenses like selling expenses, admin expenses and taxes do not take in the consideration. So this is the one step simple calculation. Company or firm use the gross income and gross profit interchangeably.

Employes take the different definition of the gross income that they use this term gross income and gross pay interchangeably.

Gross income to an employee is the salary which employer pay to its employees before the deductions taken out from the salaries. Employee consider this the gross amount and take this amount, but it is not the gross amount, it is the actual expense to employ.

If the income of an employee is the 50,000 dollars and from the paycheck, he pays 10,000 dollars taxes such as Income taxes, FICA tax etc. here the difference is 10,000 dollars between the gross and net pay.

So we can say that the gross earning is that amount which employer pay not that amount which received by the employee.

What is Net Income?

Net income can be calculated by subtracting the total revenue of the business from the total expense. This is used to calculate the profit for the company after paying all the expenses.

Now we take the above example of a company to calculate the net income of the company by subtracting all the expenses as

( 100,000 – 50,000 – 10,000 – 15,000 – 5,000)= 20,000 dollars

So the net income of the company is 20,000 dollars which mention on the income statement.

Employ consider their net income as their net pay but is the pay after deduction all the taxes and benefits share of the employe.

What is the difference between Gross and Net Income?

Gross Income: Gross earning used by the companies to find the leftover amount of revenue after cover all the operating expenses. Because of the word of the gross, it is the confusing and people take the meaning of the gross is total income.

Companies find the net income at the end of the year by subtracting all the operating expenses from the gross profit.

As from this income, all the expenses subtract that’s why it is called net income. At the bottom line of the income statement net income available.

Employees take the net and gross term simply. What is takeout from the paycheck of the employee, is a simple difference, between the gross income and net income.

The employer gives pay to the employee is the gross whereas the payment received by the employees in his paycheck is called net income.

For more Financial Ratio Check: 

Goodwill to assets ratio

Gross margin ratio

Gross profit margin

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