Gross Income
Gross income, sometimes called gross revenue, refers to money coming in the door before ANY expenses are accounted for.
Gross Profit
Gross profit refers to what’s left of a business’s gross income after cost of goods sold is subtracted.
If a business does not have cost of goods sold (as in most service-based businesses) then the business’s gross income and gross profit will be the same.
Example 1
Joe the Window Washer washes windows. This is a service business. He does not sell products, so he has no cost of goods sold. Joe brings in $100,000 from washing windows this year. His gross income and gross profit are both $100,000.
Example 2
Joe the Window Washer decides to start bottling and selling his “secret sauce” window-cleaning solution. He brings in $100,000 from washing windows, and $50,000 from sales of solution. It costs him $25,000 to bottle the formula, package it, ship it, etc.
In this example, Joe’s gross income is $150,000 ($100,000 from window washing plus $50,000 from sales of his solution). His cost of goods sold is $25,000 … leaving him with a gross profit of $125,000.
What About Net Income?
Net income refers to what’s left after all other expenses (after cost of goods sold) have been accounted for. So in example 2: Joe’s gross income is $150,000, his gross profit is $125,000, and then all other expenses are subtracted out of the $125,000 to arrive at Joe’s net income.
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