Definition of Net Income and Gross Income

Basically, net income is income that is subject to taxpayers or becomes the basis for calculating tax income. For this reason, this net income is often referred to as taxable income.

While gross income is all funds that have been obtained by the taxpayer related to his work during the tax year. As the name implies, gross income is gross income because it includes other costs.

Based on the explanation above, we can all know that net income will be obtained by reducing gross income with certain costs.

For individual taxpayers, the various deduction costs include old-age benefits, pensions, office fees, bonuses, overtime pay, and other allowances and honorariums.

But for companies, the various costs referred to are the costs of obtaining, collecting, and maintaining revenue, including:

1. Business-related direct or indirect costs, such as salaries, purchasing materials, gratuities, bonuses, and other benefits in the form of

2. travel expenses, interest expenses, rental fees, promotions, insurance premiums, administration, and taxes, except income tax.
3. Making on expenses to be able to obtain tangible assets.
4. Pension fund contributions whose form of establishment has been approved by the Minister of Finance.
5. Losses due to transfer of property or sale.
6. Losses due to foreign exchange differences.
7. Cost of development and research conducted in Indonesia.
8. Internships, scholarships and training fees.
9. Uncollectible accounts with conditions that have been charged as expenses in the income statement
10. Donations given to overcome national disasters.
11. Donations for development and research purposes in Indonesia.
12. The cost of developing social infrastructure is in accordance with government regulations that have been set.
13. Donations of educational facilities are in accordance with government regulations that have been set.
14. Sports coaching contributions are in accordance with established government regulations.

Gross Profit vs. Net Income

Two important profitability metrics for any business include gross profit and net income. Gross profit represents the income or profit that remains after subtracting the cost of production from income. Revenue is the amount of revenue generated from the sale of a company’s goods and services. The gross profit helps investors determine how much profit a business generates from the production and sale of its goods and services. Gross profit is sometimes called gross income.

On the other hand, net income is the profit that remains after subtracting all expenses and costs from income. Net income or net earnings helps investors determine a company’s overall profitability, which reflects how effectively the company has been run.

Understanding the difference between gross profit and net income can help investors determine whether a company is making a profit and, if not, where it is losing money.

Gross Profit

Gross profit, operating profit and net profit refer to the profit generated by a business. However, each represents earnings at different stages of the production and profit process.

Gross profit is a company’s earnings after subtracting the cost of producing and selling its products, called the cost of goods sold (COGS). Gross profit provides information about how efficiently a business manages its costs of production, such as labor and supplies, to generate revenue from the sale of its goods and services. A company’s gross profit is calculated by subtracting the cost of goods sold for the accounting period from its total revenue.

Revenue

Revenue is the total amount earned from sales during a given period, such as a quarter. Revenue is sometimes listed as net sales because it can include discounts and deductions for returns or damaged goods. For example, companies in the retail industry often report net sales as their earnings figure. Goods returned by your customers are deducted from total revenue. Revenues are often referred to as “top line” numbers because they are at the top of the income statement.

How To Calculate the Gross Profit

Gross profit is calculated by subtracting income and net sales from a company’s cost of goods sold, as shown below:

Gross Profit = Net Sales – COGS(cost of goods sold)

How To Calculate Net Income

As stated above, net income is the result of subtracting all expenses and costs from income, while adding up income from other sources. Depending on the industry, a company may have multiple sources of income in addition to income and various types of expenses. Some of those sources of income or costs may be listed as separate line items on the income statement.

For example, a company in the construction industry would likely have COGS listed, while a company in the services industry would not have COGS but would rather have their cost listed under operating expenses.

The general formula for net income can be expressed as:

Net Income = Total Revenue — Total Expenses

A more explained formula could be expressed as:

Net Income = Gross Profit — Operating Expenses — Other Business Expenses — Taxes — Interest on Debt + Other Income