Gross Income | Meaning and Definition

What is Gross income?

Gross income is referred to as the total sum of money earned by an employee, a business, or a contractor in a specified period of time which is generally measured for a year. Businesses are often seen reporting their gross income on a quarterly basis.

In terms of a company, gross income has a distinct meaning which is nothing but the total amount of revenue collected from all the sources and subtracted by the COGS (cost of goods sold), excluding the other expenses included in the running of the business such as the cost of the equipment, office space, payroll, advertising, marketing, and others. Gross income is the value of the sun made by a business on services or products minus the cost of the manufacturing of the same products or the service provided.

For an individual, Gross Income is otherwise called Gross Pay. It is the amount that includes the salary/wage or other income sources like capital gains, tips, rental income, interest income, or pension. It is calculated over the time span of a year and is the sum earned by an individual before deductions. Based on the Gross Income, income taxes and tax credits are calculated.

How is Gross Income beneficial?

Gross income is a beneficial tool to measure the profit earned by a company which gives a complete state of its financial standings and performance. It is also included in the income statement of a company sometimes. The other term for Gross Income is Gross Margin.

Difference between Gross Income and Net Income

In the case of a business, Gross Income, otherwise known as Gross Profit, is its revenue subtracted from the cost of the service, goods, or the products themselves, whereas Net Income, otherwise known as Net Profit, is the remaining sum of money earned by the business after subtracting the amount of the operating expenses. For example, if a business sells goods for Rs. 1 lakh, the cost of the goods being Rs. 50,000 and Rs. 10,000 being the selling expenses, then the Gross Income would be Rs. 50,000 while the Net Income would be Rs. 40,000.

As for an individual, the amount earned as salary or wage before any withholdings are the Gross Income, while the Net Income (Net Pay/Take Home Pay) is the money left for an individual in his pocket after withholdings and deductions.

Gross income is always more than Net Income.