Table of Contents
- What Are Gross Earnings?
- Gross Earnings in the Corporate World
- Key Takeaways
- Understanding Gross Earnings
- Gross Earnings on Business Income Statements
- Further Calculations
- Gross Earnings vs. Adjusted Gross Income (AGI)
- Examples of Gross Earnings
- What Is the Difference Between Gross Income and Net Income?
- Is Total Gross Income Your Salary?
- Does Gross Profit Include Tax?
- The Bottom Line
What Are Gross Earnings?
Let me explain gross earnings directly to you: it's the total amount of income earned over a period by an individual, household, or company. For individuals and households, gross earnings mean the income before deducting taxes or any adjustments.
Gross Earnings in the Corporate World
In the corporate context, gross earnings refer to a public company's gross profit, which is the amount remaining from total revenues over a specified period after subtracting the cost of goods sold (COGS).
Key Takeaways
You should know that gross earnings is the total income earned by an individual, household, or company over a period. For a person or household, it's income without deductions. For a business, it's total revenue minus COGS. Gross earnings are also called gross income or gross profit. Remember, the IRS separates gross earnings from adjusted gross income, which remains after subtracting certain above-the-line deductions.
Understanding Gross Earnings
Gross earnings are often called gross profit or gross income in finance. As I mentioned, the term varies by context. For personal or household income, gross earnings are typically the first line on an employee's pay stub. This comes before deductions like income taxes, payroll taxes, and others such as health insurance, life insurance, and retirement benefits. After these, the employer shows your net earnings or income at the bottom of the pay stub and on your paycheck.
For businesses, it's different. Gross earnings mean the money left from total revenue after deducting COGS. Known as gross profit, this is the income before adjustments and deductions like taxes. Other costs, like administrative expenses, aren't included and fall under operating income.
Gross Earnings on Business Income Statements
A company's gross earnings appear periodically on its income statement. The first line shows total sales and revenues for the period, with COGS and gross earnings often on the second and third lines. The difference between revenue and COGS is the gross earnings.
COGS Includes Costs Directly Related to the Product, Such As
- Materials for manufacturing
- Inventory for shops
- Labor costs
Further Calculations
Once gross earnings are calculated, the business subtracts other expenses like utilities, loan repayments, office supplies, contractor fees, and more. Important: Indirect costs are not part of COGS.
Gross Earnings vs. Adjusted Gross Income (AGI)
For taxes, the IRS distinguishes gross earnings from adjusted gross income (AGI). Gross income includes all your yearly earnings like wages, business income, alimony, rental income, interest, and other payments. The IRS lets you deduct certain above-the-line items from gross income, such as educator expenses, eligible moving costs, IRA contributions, and a few others. The result is your AGI. On your tax return, subtract a standard or itemized deduction from AGI to get taxable income, which the IRS taxes.
Examples of Gross Earnings
Consider this for individual gross earnings: Mr. Z earned $50,000 last fiscal year and paid $10,000 in taxes, retirement, and Social Security. His gross earnings are $50,000, net earnings $40,000. For businesses, say Company X has $2 million in sales, $500,000 COGS, and $300,000 sales expenses. Gross income is $1.5 million, and after deductions, net income is $1.2 million.
What Is the Difference Between Gross Income and Net Income?
For a business, gross income is revenues minus COGS, while net income is gross income minus all other costs like taxes.
Is Total Gross Income Your Salary?
Yes, total gross income is your salary—the amount before taxes and adjustments. For example, a $100,000 annual salary is gross income; after deductions, you might take home $65,000 as net income.
Does Gross Profit Include Tax?
No, gross profit excludes taxes, debt charges, or expenses beyond direct costs.
The Bottom Line
Gross earnings are the income generated by an individual before taxes, or for a business, revenue after deducting COGS. It plays key roles in personal finance and business. Lenders use gross income to assess loan repayment ability, and gross margin from gross earnings measures company profitability.
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