What is Gross vs Net? An Explanation

Gross refers to the whole of something, while net refers to a part of a whole following some sort of deduction. For example, net income for a business is the income made after all expenses, overheads, taxes, and interest payments are deducted from the gross income. Similarly, gross weight refers to the total weight of goods and their packaging, with net weight referring only to the weight of the goods.

Gross vs Net

What is Gross vs Net?

Gross means the total or whole amount of something, whereas net means what remains from the whole after certain deductions are made. For example, a company with revenues of $10 million and expenses of $8 million reports a gross income of $10 million (the whole) and net income of $2 million (the part that remains after deductions). This guide will compare gross vs. net in a business context.

MeaningThe term gross refers to the total amount made as a result of some activity. It can refer to things such as total profit or total sales.Net (or Nett) refers to the amount left over after all deductions are made. Once the net value is attained, nothing further is subtracted. The net value is not allowed to be made lower.
TaxationSalaried people now pay income tax on their gross income as per the Income-Tax Act of 1961.Businesses and self-employed persons pay tax on their net income as per the Income-Tax Act of 1961.
Gross and Net profitGross profit (aka gross margin, sales profit, or credit sales) is the difference between revenue and the cost of making a product or providing a service, before deducting overheads, payroll, taxation, and interest payments.Net profit (aka top line, net income, or net earnings) is a measure of the profitability of a venture after accounting for all costs. It is the actual profit and includes the operating expenses that are excluded from gross profit.
Gross vs Net MarginGross margin = Gross income as a percentage of revenueNet margin = Net income as a percentage of revenue
Gross vs Net WeightIn the context of weight, gross refers to the weight of the product and the packaging.In the context of weight, net refers to the weight of the actual product (without the packaging).
Gross vs Net IncomeGross income is calculated by subtracting the cost of goods sold from revenue.Net income is calculated by subtracting expenses such as SG&A (selling, general and administrative expenses), interest payments, and taxes from gross income.

Examples of Gross Items

In finance and accounting, there are many items in the financial statements that are referred to as gross.

Examples include:

  • Gross Assets – The value of assets before any deductions
  • Gross Revenue – All revenue before any items are netted out (e.g., refunds and returns)
  • Gross Profit – Profit margin after only deducting the cost of sales or cost of goods sold
  • Gross Margin – Gross profit divided by revenue, showing gross profit as a percentage

Examples of Net Items

There are also many instances of net items that appear in financial statements.

Examples include:

  • Net Assets – The value of assets after certain liabilities are deducted
  • Net Revenue – Revenue after refunds, returns, or other items are deducted
  • Net Earnings – The bottom line that remains after deducting all expenses from revenues
  • Net Income – Same as net earnings
  • Net Margin – Net income divided by revenue, showing net income as a percentage of

Gross vs Net in Conversations

The terms gross and net are used frequently in accounting and finance conversations. The easiest way to know what someone means is to think about what could naturally be deducted from something.

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