Gross vs Net Income Explained

To put gross vs net income in very simple terms:

Gross income - expenses = net income.

Now let's go over some of the details of the differences between gross and net income.

What is Gross Income

Gross income, also know as revenue, is the total amount of cash, and any other capital, received as compensation for any products or services that you provide. If you are keeping your books on an accrual basis, gross income includes all of your accounts receivable.

In other words, gross income is the total income you make. If you have a business, any money that comes into that business is gross income.

If you work a job and receive a paycheck, your total salary before any tax or other deductions are taken out is your gross income.

What is Net Income

Net income includes the total income you take home.

If you have a business, any expenses you incur operating your business are deducted from your gross income in order to determine your business's net income.

For your personal income, your net income equals your total income minus any taxes or any other qualifying deductions that are taken out of your paycheck. Check with your certified public accountant who helps file your tax return to find out what qualifying deductions reduce your net income.

Other references that might help you understand gross and net income.

To more fully understand how gross income and net income work, let's take a look at the profit and loss statement.

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