Gross is a total amount, net is an amount after deductions like tax or discounts have been made.
These terms are useful when talking about finance, and when talking about buying and selling goods or services, or about salaries.
When it comes to accounting we often talk about gross and net pay.
Gross pay versus net pay
Gross and net pay can also be called gross and net income.
Gross pay is the salary before any deductions have been made, such as income tax and other wage-related deductions like pension contributions or union dues. Net pay is the actual amount an employee receives into their bank account on payday.
When an employee negotiates their salary both they and their employee will use gross pay as a reference. However, it is the net pay they will actually receive. That’s why it’s important for employees to understand these terms—as well as applicable deductions—since that will determine their take-home pay.
Reporting revenue
Gross and net can also be used when talking about revenue.
Gross revenue, also called gross sales, is the total income from all your sales. Net revenue, also called net sales, is the income from sales minus discounts, returns, and allowances.
However, keep in mind that net revenue doesn’t include the cost to produce goods—called variable costs—or general expenses—called fixed costs. To actually find out if your company is running with a profit or a loss, you have to work out the break-even point.
You record both types of revenue on the income statement.
Gross and net price
When you sell or purchase goods and services, they’ll have a net price, also called subtotal, which is the price without consumption tax, such as VAT or GST. The gross cost is the price including this consumption tax.
It’s important to inform the client about the actual cost of what they are buying, just as you want your suppliers to do to you.
