Compare Gross vs Net | Difference
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What is the difference between gross vs net?
Let’s check it out. Generally speaking, gross means the entirety of something, while net means a part of the total following a form of deduction.
The two terms are often used in tax terms as gross and net income.
Irrespective of the nature of business and its size, an income statement is prepared at the end of every financial year and two must-haves in it are gross income and net income.
While the purpose of the income statement is to adjudge the performance and viability of the business, both gross and net incomes are important in their own right as they provide an insight into the inner functioning of the unit. These parameters also play an important role while filing tax returns pertaining to the business.
Gross income
Gross income refers to the total income which the business has earned throughout the year and is inclusive of anything that qualifies as an income even if it is routed through a third party. It is an important statistical parameter and is expressed through several expressions like gross earnings, gross profit, gross margin and so on.
Net income
When expenses like debts, taxes and expenditure have been deducted from gross income, the figure obtained is referred to as net income. As per this logic, while a positive net income is reflective of a good performance, a negative net income implies that the business is incurring a loss.
Because gross income is calculated before taxes, it is also known as gross profit and from this when depreciation, interest and other costs are subtracted, the figure obtained is referred to as net income. Given the net income is derived by cutting down of various costs from the total revenue collected by the business over the year, it is also referred to as the bottom line, net profit or net earnings.
Finally, the intention underlying calculation of gross income is to identify the main expense channel of a business or a company while that of net income is to realise the assets which are fetching profits and those that are loss-making and hence can be curtailed or eliminated altogether.
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Basically whether it is your personal salary or your business income the gross income is what you would actually want to have in your bank account at the end of the day. We don’t want to pay all these taxes that leaves us with the net salary. I always say they call it net salary because it’s so small you need a net to fish your money from down the drain. That is why it’s easy for me to remember the difference gross is what I want – net is what I fish for 🙂
I like the analogy Janet :D. Thanks for your comment.
Glad you liked it 😀