WELCOME TO SADEDIJI2GIST ™: Gross and net income

Gross vs Net Income.
Many people face utter confusion when
asked to state the difference between
gross and net income. To be fully in
control of your finances you need to
understand the tangible differences
between the two. Both personal and
business finances can be greatly affected if
you lack this relevant knowledge.
As an employee, your wages are
determined by numerous factors. Your
pay slip will contain a set of two figures.
The first number is classed as your ‘gross
income’. It is the amount your employer
has agreed to pay you for either a week
or months worth of work before the
government charges you any taxes. This
calculation becomes a slightly more
complex if you run a business or large
corporation. In order to calculate your
gross income from the business, you first
need to take away the cost of the goods.
An easy calculation is as follows; Cost per
unit of sales ‘“ total cost of goods sold =
Gross profit. If your calculation generates
a negative figure, it is unfortunate, but
your company has made no money during
the financial year.
Now comes the tricky bit because we live
in a democratic society we are expected
to pay a certain level of tax to the state.
The government looks at the amount we
earn. The level of your gross income
determines what level of tax you have to
pay. The more you earn, the more you
have to pay. Different countries have
different levels of deductions and the
government has the right to deduct your
gross income accordingly. You can often
find yourself with an extremely depleted
final figure after all the taxations are
deducted.
Business Net Income is even more
confusing for the business owner. Net
income is calculated by subtracting not
only the cost of goods, but also any
operating expenses that have occurred
while running your business. The list that
you can claim for is endless. Of course the
benefits of this are that the more you
deduct, the lower your income becomes
and the less the government can tax you
for.
Summary
1. For an individual, gross income is the
salary that your employer pays you before
deductions.
2. For a company, gross income is
established by the following calculation:
Cost per unit of sales ‘“ total cost of goods
= Gross Profit.
3. Both individual employees and businesses
pay tax in relation to their gross salary or
profit.
4. Many different taxes are deducted from
your earnings
5. Once the tax has been deducted from
your gross earnings, you are left with
what is known as your net income.