Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Gross Income

What it is:

Gross income is income before taxes or adjustments. In the accounting world, gross income is usually the same thing as gross profit (that is, revenue minus cost of goods sold).

How it works (Example):

Let's assume restaurant chain XYZ sold $1 million worth of food last year. The cost of that food was $330,000. Thus, the company's gross income was $1 million - $330,000 = $670,000.

Let's also assume John Doe gets a job that pays $1,000 a week. Though he only brings home $750 due to payroll taxes, his gross income is $1,000.
 

Why it Matters:

Gross income does not exclude the cost of goods sold, general and administrative expenses, or other costs (those are typically incorporated in the operating income calculation).

For individuals, gross income is not the same as taxable income. For example, if John used $250 of his $1,000 a week to invest in his 401(k) plan, his gross income would be $1,000 but his taxable income would be $750.