Gross income (GI) for a person, often referred to as gross pay on a paycheck, is the total amount they earn before any taxes or deductions are taken out. This encompasses earnings from various sources, not just from a job, and it can include non-cash income like property or services as well.
For businesses, gross income is the same as gross margin or gross profit. You can find a company’s gross income on the income statement, which is calculated by subtracting the cost of goods sold (COGS) from the total revenue generated from all sources.
Learn more about Gross Income
Gross income has different elements for individuals and companies. For individuals, figuring out gross income is pretty straightforward—just check a recent pay stub or tally up hours worked and wages. On the other hand, a company’s gross income might take a bit more number crunching.
Lenders and landlords look at an individual’s gross income to decide if they’re a good candidate for a loan or rental. When it comes to filing federal and state taxes, gross income is the baseline before any deductions are taken into account to figure out the tax bill.
For companies, calculating gross income helps them gauge how well specific products are doing. By focusing on gross income and excluding certain expenses from the mix, businesses can get a clearer picture of what’s working and what’s not. For instance, if a company wants to assess the performance of a particular product line, it wouldn’t want unrelated costs like rent to skew the results since that’s more of an administrative expense.
Calculate Gross Income
The way we figure out gross income for a person is a bit different from how we do it for a business. While the calculations have some similarities, each one looks at different types of income and expenses.
Business Gross Income (GI)
Gross income is a figure that you might see on a company’s income statement. If it’s not shown there, you can figure it out by taking the gross revenue and subtracting the cost of goods sold (COGS).
Gross Income= Gross Revenue − COGS
where:
COGS=Cost of Goods SoldDoes Gross Income Include Taxes?
Gross income (GI) is basically the total earnings a person or business makes before any deductions are taken out. It’s figured out by adding up all the revenue before you start subtracting things like expenses, interest, and taxes.
Conclusion
Gross income serves as a fundamental financial metric that represents the total earnings of an individual or business before any deductions or expenses are accounted for. It encompasses all sources of income, including wages, salaries, investments, and other revenue streams. Understanding gross income is essential for effective financial planning, tax compliance, and assessing overall financial health. While it provides a clear picture of total earnings, it is important to distinguish gross income from net income, which reflects the actual take-home pay after deductions. By grasping the concept of gross income, individuals and businesses can make more informed decisions regarding budgeting, investments, and long-term financial strategies.