Difference between Gross and Net

Key Difference: Gross is the total income, on the other hand, net is the part of the total income.

According to Dictionary.com, ‘Gross’ is:

  • Without deductions; total, as the amount of sales, salary, profit, etc., before taking deductions for expenses, taxes, or the like (opposed to net): gross earnings; gross sales.
  • Unqualified; complete; rank: a gross scoundrel.
  • Flagrant and extreme: gross injustice.
  • Indelicate, indecent, obscene, or vulgar: gross remarks.
  • Lacking in refinement, good manners, education, etc.; unrefined.

Gross is the whole part. There are no deductions like health insurance, taxes, profit sharing, etc., made from the gross value. It refers to the total amount made as result of some activity such as total profit or total sales. For example: If John is working with an hourly rate of Rs.10 per hour and if he is working for a week of 40 hours, then the gross pay would be Rs.400.

Gross income is calculated by subtracting the costs of goods sold from revenue. Costs of goods includes any and all costs that are incurred for purchasing the goods, converting them into products, as well as storing the products as part of inventories, until their sale. The costs pf goods may include material costs, labor costs, and allocated overhead. 

According to Dictionary.com ‘Net’ is:

  • Remaining after deductions, as for charges or expenses (opposed to gross ): net earnings.
  • Sold at a stated price with all parts and charges included and with all deductions having been made.
  • Final; totally conclusive: After all that work, what was the net result?
  • (of weight) after deduction of tare, trot, or both.
  • Net income, profit, or the like.
  • To gain or produce as clear profit.

Net refers to the amount left over after all the deductions are made. It is a value that one earns after all of the expenses have been subtracted from the gross profit. Let’s take the example of John: With a gross pay of Rs.400 and deductions of Rs.60 is made, then the net pay would be Rs.340.

Gross income includes all of the income one’s business earns during the year, while net income includes only the profit one’s business earns after you subtract business expenses and other allowable deductions from one’s gross income.

Gross is the profit from the transaction without deduction, whereas, net is the profit from the transaction, after deducting cost of goods and cost of the sale (manpower, taxes, rent, etc.)

Image Courtesy: buzzle.com, thebizowner.com

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