Gross Income

Investment Formula Description

Gross income or gross profit is the commonly known as pre-tax net sales minus cost of sales or cost of goods sold ( COGS ) 

Cost of goods sold ( COGS ) or cost of sales are direct materials cost and direct labor costs. On the other words, gross  income is the remaining revenue after deducting cost of goods sold (COGS) before deducting overhead, payroll, taxation and interest expense. Note that gross profit and sales profit is not same with operating profit ( earning before interest and taxation ) because gross income is only deduct cost of good sold ( COGS ) from revenue but operating profit deduct operating expense ( including COGS and overhead ) as a whole from operating revenue. Gross income is used in gross profit margin investment formula to calculate gross profit margin for a corporation.Hence, gross income sometimes is also known as gross margin.

Besides, gross income is not only can apply to corporation but it can be apply to individuals too. For individuals, gross income means the total personal income before taking taxation or deductions into account.

Investment Formula

Gross income = RevenueCost of Goods Sold

Investment Formula Example

Corporation A has $30,000 revenue with $15,000 of cost of goods sold ( COGS ) and $ 1,000 for overhead such as taxes, rentals and salaries. The Gross profit calculations are as following.
Gross income = Revenue - Cost of Goods Sold ( COGS ) = 30,000 - 15,000 = $15,000

Unlike net income, overhead such as taxes, rentals, salaries is not deducted from revenue for Gross Profit.

 

For individuals, Charles earn $60,000 of annual earnings for 2007 and his annual earnings are subject to 10% of income tax,

Gross income = Annual earnings - taxes = 60,000 - ( 60,000 X 10% ) = $54,000

After taxation, the gross income for Charles is $54,000.