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Gross means the total or whole amount of something, whereas net means what remains from the whole after certain deductions are made. For example, a company with revenues of $10 million and expenses of $8 million reports a gross income of $10 million (the whole) and net income of $2 million (the part that remains after deductions). This guide will compare gross vs. net in a business context.
Examples of Gross Items
In finance and accounting, there are many items in the financial statements that are referred to as gross.
Examples include:
Gross Assets – The value of assets before any deductions
Gross Revenue – All revenue before any items are netted out (e.g., refunds and returns)
Gross Profit – Profit margin after only deducting cost of sales or cost of goods sold
Gross Margin – Gross profit divided by revenue, showing gross profit as a percentage
Examples of Net Items
There are also many instances of net items that appear in financial statements.
Examples include:
Net Assets – The value of assets after certain liabilities are deducted
Net Revenue – Revenue after refunds, returns, or other items are deducted
Net Earnings – The bottom line that remains after deducting all expenses from revenues
Net Margin – Net income divided by revenue, showing net income as a percentage of
Gross vs Net Calculator
Let’s work through two examples that were listed above and calculate the various gross vs net amounts.
Assets: A company owns land worth $5 million, a building worth $2 million, and has a $4 million mortgage. The gross asset value is $7 million ($5 million + $2 million) and the net asset value is $3 million ($5 million + $2 million – $4 million).
Income: The same company reports rental income of $1 million per year, interest payments of $200,000, salaries of $250,000, and taxes of $100,000. The gross income is $1 million. The net income is $450,000 ($1 million – $200,000 – $250,000 – $100,000).
Download CFI’s Excel calculator to input your own numbers and calculate different values on your own. As you’ll see in the file, you can easily change the numbers or add/remove rows to change the items that are included in the calculation.
Gross vs Net in Conversations
The terms gross and net are used frequently in accounting and finance conversations. The easiest way to know what someone means is to think about what could naturally be deducted from something.
For example, if someone says, “Our company made $30 million last year in our online division.”, you may want to ask them, “Gross or net?”. If they say gross, they probably mean either revenue or gross profit (you may need to ask for further clarification). If they say net, you may assume it’s net income (after all expenses are deducted), but you may still need to ask for clarification, as they could be thinking only of operational expenses (which excludes interest and taxes), or they might be including all items.
Unfortunately, as you can see in the example above, it is sometimes ambiguous what someone means when they say “gross” or “net”, so further clarification may be required. The only way to know for sure what someone means is to ask them exactly what is included and/or what is deducted from the figure.
Additional Resources
Thank you for reading this guide to understanding what gross vs net means in a business financial context.To continue learning and advancing your career, these additional CFI resources will be useful:
Looking for a faster, more accurate way to calculate pay? Gross pay is what employees earn before taxes, benefits and other payroll deductions are withheld from their wages. The amount remaining after all withholdings are accounted for is net pay
net pay
Net pay means take-home pay or the amount employees earn after all payroll deductions are subtracted from their gross pay.
Net. Gross refers to the whole of something, while net refers to a part of a whole following some sort of deduction. For example, net income for a business is the income made after all expenses, overheads, taxes, and interest payments are deducted from the gross income.
When filing your federal and state income tax forms, you'll use your gross income as your starting point. Then, you can subtract deductions to determine how much you'll owe.
Net amount is the total amount of something after taxes and other deductions have been taken into account. In accounting, net amount is often used to refer to the total revenue or profit after all expenses have been paid.
An individual's gross income is the total amount earned before taxes or other deductions. Usually, an employee's paycheck will state the gross pay as well as the take-home pay. If applicable, you'll also need to add other sources of income that you have generated—gross, not net.
A gross rate of return is reflective of an investment's return before expenses or any deductions. A net rate of return is the investment's return after costs, such as taxes, inflation, and other fees.
Gross pay is how much employees earn before taxes and other withholdings, whereas net pay is the amount of money employees actually take home after all payroll deductions. For example, if an employee makes $8,000 gross per month and has $1,700 deducted for taxes and benefits, that individual's net pay would be $6,300.
Gross-to-net (GTN) in payroll refers to the calculation that determines an employee's net income after deducting taxes, insurance premiums, retirement contributions, and other withholdings from their total or gross earnings. This process provides a clear picture of the actual take-home pay an employee receives.
Should I report the gross or net income on my credit application? You will need to report your gross income on a credit card application. That's your annual salary before taxes and other deductions.
Your gross annual income will always be larger than your net income because it does not include any deductions. Some deductions are mandatory and others are voluntary choices you have made about savings or benefits. Required deductions can include but are not limited to: Federal, state and local income or payroll taxes.
The verb to gross means "to earn a certain amount of money before tax and other costs are subtracted". The verb to net means "to earn a certain amount of money as clear profit (after taxes and other costs are subtracted)".
Net income is the amount of money you bring home after taxes and deductions are taken out of your paycheck. For businesses, net income refers to the money left over after business expenses have been paid.
In business terms, net income is the final figure after all expenses are accounted for. It's a crucial indicator of a company's financial health, reflecting the actual earnings after deducting costs like materials, wages, and operational expenses.
The amount of Gross pay will be higher than net pay because it consists of health premiums, insurance premiums, and state income taxes. Whereas, net pay is the in-hand salary of an employee after deductions.
It provides investors with the financial data they need
Good net income indicates that a company is financially stable, with enough money left over to pay their bills. It also provides good insight into whether a company is likely to remain successful.
Net worth is different than income, since we don't necessarily keep every dollar we make. Instead, we buy, borrow and make investments with money, and the total value of our properties and cash goes up and down with time. Your net worth is, therefore, a big-picture way to measure your overall financial health.
A high net income is generally viewed as positive, as it shows that the company is generating more revenue than it is spending on operating costs. However, it is important to note that net income is just one of many factors to consider when evaluating a company's financial health.
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