Want to know the difference between gross income and net income? A reader asked this question; what is a gross income, how to calculate gross income and what is the difference from net income?. The difference between the two will explain below. Every business owner are very sensitive and carefully analyzing their cash flow.
Trivia:If you are applying for a business loan in the bank or any financial institution, they will require you to show your gross sales. Sometimes, it is the basis on how much business loan you can get. So document all your sales as a reference when applying a business loan.
Difference Between Gross Income and Net Income
Gross income is the total sales made periodically. A sales for today, this week, this month, this quarter or this year. Example, if you have a product selling at a price of $200 and you make 100 sales this week, your gross sales this week is two thousand dollars ($2,000)
While on the other hand, there is the net income. You will know if you are making a profit by looking at your net income.
A net income is a profit made after expenses. Therefore, to calculate net income, we must subtract the expenses to gross sales. assuming your expenses this month is $700?How much is your net income if your gross sales is $2,000? The answer is $1,800.
It is very important to know or track your expenses. Do not rely to your gross income because it is not the basis when knowing or analyzing the business if it is profitable or not.