Gross income refers to the money that a business or individual earns in a specific period. Depending on the information needed, gross income can be measured yearly, quarterly, monthly, or weekly.
What do you mean when you talk about an individual’s gross income?
An individual’s gross income is the money that they earn in a given time. This income is not just the money that is coming from wages and salary. The gross income of an individual can also come from other sources such as dividends, tips, rental income, income from interest, capital gains, and pension. Keep in mind that gross income is measured before anything is taken from it. This is the money before withholding taxes and taking out applicable deductions. No matter the amount, knowing your gross income is beneficial. It is the starting point of other calculations for income taxes, tax credits, and other things.
What do you mean when you talk about the gross income of a business?
The gross income of a business is also called “gross margin”. This is the revenue of the business from the sale of goods or services minus the cost of goods sold (COGS). The cost of goods is the only item that is subtracted from the revenue. Other expenses that are not subtracted are equipment, office space rental, payroll, advertising, and other items. A company’s gross income is a basic measure of how much money a company made on its products and services. Being aware of the gross income of a business helps paint a picture of how a company is performing.
Does gross income also mean net income?
While these two are both relevant information on how an individual or business is earning, gross and net income are different.
An individual’s gross income refers to the amount of money they are paid before taking out taxes and other deductions. The net income of a person is the money after subtracting taxes and other applicable deductions. Remember that the net income is a person’s take-home pay. As a general rule, net income is always smaller than gross income.
The gross income of a business is the revenue minus the cost of goods and services. The net income of a company is the money left after taking out all operating expenses.
How is gross income calculated?
To compute an individual’s gross income, get the sum of the amounts earned from all income sources: wages, salary, dividends, rental income, interest income, etc.
Let’s have an example. Let’s say Emille is a marketing manager who has an $80,000 annual salary. Aside from her job, Emille also earns $500 a year from dividends and $9,000 per year on rental income. What is her gross income per year?
$80,000 + $500 + 9,000 = $89,500
By getting the sum of all her income sources per year, Emille’s gross income for the year is $89,500.
If you know what your monthly gross income is, you can get your yearly gross income by multiplying it by 12. Similarly, you can also derive your monthly gross income if you know what your annual salary is. Take the sum of your annual salary and other sources of income. Simply divide this number by 12 and you will arrive at your monthly gross income.
Now, let’s have an example of business gross income calculation. Let’s remember that the formula for a company’s gross income is:
Gross Income = Gross Revenue - Cost of Goods Sold
The cost of goods sold is the direct expenses incurred from producing the goods or services of the company. Examples can be raw materials expenses, manufacturing costs, or shipping costs. This does not include other operational expenses like payroll or office space rental.
For example, Company ABC‘s sales are $500,000. Raw materials are $180,000 and equipment cost $35,000. How much is the gross income of Company ABC?
Gross Income = 500,000-180,000+35,000
=500,000 - 215,000
Company ABC’s gross income is $285,000.
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