In our daily lives, we often hear the terms gross and net as these terms have the diverse scope and are not only limited to the economics student. We see the usage of these terms as gross or net profit, gross or net salary, gross or net weight, gross or net income, etc. Here we will be differentiating it between the gross and net income. People often use these terms interchangeably as they are closely associated with one and another. But in reality both these terms have quite different features and characteristics. The gross income is the income of the company or the person without exclusion of expenses, taxes or any other adjustments. On the other hand, net income is the income of the company or the person after the taxes and other deductions are made from the gross income. While calculating the profits, gross income is one of the initial values we get. The net income is even dependent on the gross income as the deductions of expenses and taxes are made in this to know the net income.
What is Gross Income?
The gross income is one of the most fundamental values when we are evaluating the performance of the company and the revenue potential gained from it. The term gross income can be both used for the companies and the individuals. It is also called the gross profit or the gross margin. For an employee, either working as on salary basis or is the wage earner, the gross income is the income, out of which tax deductions aren’t made. For instance, a person gets the cheque of $1000 salary, after the deductions of taxes, he gets $ 800, in this case, $1000 is the person’s gross income and $700 is the net income. For a company, the gross income is the earning without the deduction of the other expenditures during the production process. The adjustments and appropriations aren’t made by the company while taking out the raw value of the gross income. A certain fall in the gross income directly predicts that that cost of production has surpassed the price that product was being sold in the market.
What is Net Income?
The net income is the income value we get from the raw value of the gross income. In other words we can say that net income is directly dependent on the gross income. After the deductions, adjustments in the gross income, we get the net income. The net income is complex value, which tells the profit incurred by an individual or the company. While getting the net income value, we came up with the difference in the total revenue and all the expenses incurred during the period; the value we get is the operating profit. Furthermore, the deduction of taxes or any other adjustments, gives us the net income value. The net income stands for the profit witnessed by the company or an individual. It often denotes the cash available in hand, after the deductions and adjustments. The deductions can vary as the tax rates vary. For instance, when we talk about the net profit of the movie, it is the profit that film has witnessed after all the expenses and taxes are deducted out from it.
Gross Income vs. Net Income
- The gross income is the income of the company or the person without exclusion of expenses, taxes or any other adjustments. On the other hand, net income is the income of the company or the person after the taxes and other deductions are made from the gross income.
- The net income is directly dependent on the gross income, whereas the gross income is not dependent on the net income.
- The net income is even dependent on the gross income as the deductions of expenses and taxes are made in this to know the net income.
- Gross income is always higher than the net income.