![]() Without calculating net income, a business owner has no way of knowing whether they actually made or lost money over a set period of time, regardless of how much they sold in goods and sales. Net income is the amount of money a company makes over a period of time after it accounts for all of its expenses incurred over that same period – it’s profit as opposed to revenue. Key takeaway: Gross income measures the total amount of revenue brought in via sales in a given period of time. Gross income is extremely easy to report using any off-the-shelf accounting software – all managers have to do is run a report for the total income received over a set period of time. It’s equal to the company’s total sales over a period of time. That $250,000, before any expenses are deducted, is equal to the store’s gross income for that quarter.Ī business’s gross income is relatively straightforward. Imagine a retail clothing store that sells $250,000 worth of clothes over the course of a quarter. Gross income helps managers to track a business’s sales volume, as opposed to profitability. It’s also important for managers tracking employees sales quotas and productivity requirements to measure gross revenue. That’s the only way they can track their sales over time, the average size of sales and seasonality. When business owners review their revenue over various periods, they need to do so before deducting any expenses. Doing this allows managers to track the growth (or contraction) of their sales of various goods and services. In managing their business’s finances, owners and managers need to periodically total their sales over various periods of time, including weekly, monthly, quarterly or annually. Gross income is the amount a company makes before accounting for any expenses – either those like cost of goods sold that are directly allocable to a particular product or fixed expenses like salaries for administrative staff.Įssentially, a company’s gross income is equal to its total sales over a set period of time. Without discerning between net and gross, managers have no way of knowing whether their path to increased profitability involves increasing sales or cutting costs. It’s important to understand the difference between net and gross income because it’s the only way small business owners can understand how their business makes money, which affects budgeting and planning. ![]() ![]() The difference between a company’s net and gross income is equal to its total expenses incurred during the covered period.Įditor’s note: Looking for the right accounting software for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs. This article is for entrepreneurs who want to improve their accounting process and better understand their business’s profitability.Ī business’s net income is its total profit over a period of time, while gross income is simply its total sales over the same period.Understanding the difference between the two is key to understanding your business’s financial health.Net income is the profit left after deducting total expenses from gross income.Gross income is the total revenue derived from sales of goods and services in a specified period.
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