Understanding Financial Terms: The Difference Between Net Income and Gross Income Explained

Decoding Personal and Business Earnings: A Comprehensive Guide to Gross vs. Net Income

When navigating the world of personal and business finances, two critical terms often arise: Net Income and Gross Income. These concepts are fundamental to understanding financial health, whether you’re an individual assessing your salary or a business evaluating profitability.

What is Gross Income?

Gross Income refers to the total amount of income earned before any deductions or taxes are taken out. It’s the starting point for calculating your taxable income and provides a comprehensive view of your total earnings.

For Individuals

In the case of an individual, gross income includes wages, salaries, bonuses, rent received, interest earned, and all other sources of income before taxes or other deductions.

For Businesses

For a business, gross income, often called gross profit, is the revenue generated from the sale of goods or services minus the cost of goods sold (COGS). It does not include expenses like overheads, taxes, or interest payments.